Economic history of the United States
Encyclopedia
The economic history of the United States has its roots in European colonization
in the 16th, 17th, and 18th centuries. Marginal colonial economies grew into 13 small, independent farming economies, which joined together in 1776 to form the United States of America. In 230 years the United States grew to a huge, integrated, industrialized economy that makes up nearly a quarter of the world economy
. The main causes were a large unified market, a supportive political-legal system, vast areas of highly productive farmlands, vast natural resources
(especially timber, coal, iron, and oil), and an entrepreneurial spirit and commitment to investing in material and human capital. The economy has maintained high wages, attracting immigrants by the millions from all over the world. Technological and industrial factors played a major role.
, sailing under the Spanish flag, set out to find Asia and happened upon a "New World
". For the next 100 years, Spanish, Portuguese, Dutch, English and French explorers sailed from Europe for the New World, looking for gold, riches, religious merit, honor, and imperial power. But north of Mexico there was little glory and less gold, so most did not stay. The people who eventually did settle arrived later. In 1565 a small fort at St. Augustine, Florida
, was founded by the Spanish, and in 1607 a small band of settlers built England's first permanent settlement in what was to become the United States at Jamestown
.
While they traded among themselves, Native Americans lacked immunities when European explorers began arriving after 1492, bringing new microbes. Their economic systems, for example the economy of the Iroquois
, involved various combinations of hunting and gathering
and farming. Native American economies were profoundly altered by the arrival of Europeans and the resulting arrival of new diseases, influx of European goods, business relations with the Europeans regarding the fur trade
, acquisition of horses, firearms and alcohol, engagement in wars, loss of land, and confinement to reservations
.
Early settlers had a variety of reasons for coming to America. The Puritans of Massachusetts
wanted to create a purified religion in New England. Other colonies, such as Virginia, were founded principally as business ventures. England's success at colonizing what would become the United States was due in large part to its use of charter companies. Charter companies were groups of stockholders (usually merchants and wealthy landowners) who sought personal economic gain and, perhaps, wanted also to advance England's national goals. While the private sector financed the companies, the King provided each project with a charter or grant conferring economic rights as well as political and judicial authority. The colonies generally did not show quick profits, however, and the English investors often turned over their colonial charters to the settlers. The political implications, although not realized at the time, were enormous. The colonists were left to build their own lives, their own communities, and their own economy.
Throughout the colonies, people lived primarily on small farms and were self-sufficient. In the few small cities and among the larger plantations of South Carolina
, and Virginia
, some necessities and virtually all luxuries were imported in return for tobacco, rice, and indigo
exports.
Small local industries emerged as the colonies grew, such as sawmills, and gristmills. Entrepreneurs established shipyards to build fishing fleets and, in time, trading vessels and built iron forges. By the 18th century, regional patterns of development had become clear: the New England
colonies relied on shipbuilding and sailing to generate wealth; plantations (many using slave
labor) in Maryland
, Virginia, and the Carolinas grew tobacco, rice, and indigo; and the middle colonies of New York, Pennsylvania
, New Jersey
, and Delaware
shipped general crops and furs. Except for slaves, standards of living were generally high—higher, in fact, than in England itself.
region's economy grew steadily over the entire colonial era, despite the lack of a staple crop that could be exported. All the provinces, and many towns as well, tried to foster economic growth by subsidizing projects that improved the infrastructure, such as roads, bridges, inns and ferries. They gave bounties and subsidies or monopolies to sawmills, grist mills, iron mills, pulling mills (which treated cloth), salt works and glassworks. Most important, colonial legislatures set up a legal system that was conducive to business enterprise by resolving disputes, enforcing contracts, and protecting property rights. Hard work and entrepreneurship characterized the region, as the Puritans and Yankees endorsed the "Protestant Ethic
", which enjoined men to work hard as part of their divine calling.
The benefits of growth were widely distributed in New England, reaching from merchants to farmers to hired laborers. The rapidly growing population led to shortages of good farm land on which young families could establish themselves; one result was to delay marriage, and another was to move to new lands farther west. In the towns and cities, there was strong entrepreneurship, and a steady increase in the specialization of labor. Wages for men went up steadily before 1775; new occupations were opening for women, including weaving, teaching, and tailoring. The region bordered New France, and in the numerous wars the British poured money in to purchase supplies, build roads and pay colonial soldiers. The coastal ports began to specialize in fishing, international trade and shipbuilding—and after 1780 in whaling. Combined with a growing urban markets for farm products, these factors allowed the economy to flourish despite the lack of technological innovation.
, as they saw it, to select their own representatives to govern and tax
them – which Britain refused. The Americans attempted resistance through boycotts of British manufactured items, but the British responded with a rejection of American rights and the Intolerable Acts
of 1774. In turn, the Americans launched the American Revolution
, resulting in an all-out war against the British
and to independence for the new United States of America. The British tried to crush the American economy with a blockade of all ports, but with 90% of the people in farming, and only 10% in cities, the American economy proved resilient and able to support a sustained war, which lasted 1775–1783.
The American Revolution
(1775–1783) brought a dedication to unalienable rights to "life, liberty, and the pursuit of happiness," which emphasize individual liberty and economic entrepreneurship, and simultaneously a commitment to the political values of Republicanism
, which emphasize civic virtue and duty.
Britain's war against the Americans, French and Spanish cost about £100 million. The Treasury borrowed 40% of the money it needed and raised the rest through an efficient system of taxation. Heavy spending brought France to the verge of bankruptcy and revolution.
Congress and the American states had no end of difficulty financing the war. In 1775 there was at most 12 million dollars in gold in the colonies, not nearly enough to cover current transactions, let alone on a major war. The British made the situation much worse by imposing a tight blockade on every American port, which cut off almost all imports and exports. One partial solution was to rely on volunteer support from militiamen, and donations from patriotic citizens. Another was to delay actual payments, pay soldiers and suppliers in depreciated currency, and promise it would be made good after the war. Indeed, in 1783 the soldiers and officers were given land grants to cover the wages they had earned but had not been paid during the war. Not until 1781, when Robert Morris was named Superintendent of Finance of the United States
, did the national government have a strong leader in financial matters. Morris used a French loan in 1782 to set up the private Bank of North America
to finance the war. Seeking greater efficiency, Morris reduced the civil list, saved money by using competitive bidding for contracts, tightened accounting procedures, and demanded the federal government's full share of money and supplies from the states.
Congress used four main methods to cover the cost of the war, which cost about 66 million dollars in specie (gold and silver). Congress made two issues of paper money, in 1775–1780, and in 1780–81. The first issue amounted to 242 million dollars. This paper money would supposedly be redeemed for state taxes, but the holders were eventually paid off in 1791 at the rate of one cent on the dollar. By 1780, the paper money was "not worth a Continental", as people said, and a second issue of new currency was attempted. The second issue quickly became nearly worthless—but it was redeemed by the new federal government in 1791 at 100 cents on the dollar. At the same time the states, especially Virginia and the Carolinas, issued over 200 million dollars of their own currency. In effect, the paper money was a hidden tax on the people, and indeed was the only method of taxation that was possible at the time. The skyrocketing inflation was a hardship on the few people who had fixed incomes—but 90 percent of the people were farmers, and were not directly affected by that inflation. Debtors benefited by paying off their debts with depreciated paper. The greatest burden was borne by the soldiers of the Continental Army, whose wages—usually in arrears—declined in value every month, weakening their morale and adding to the hardships suffered by their families.
Beginning in 1777, Congress repeatedly asked the states to provide money. But the states had no system of taxation either, and were little help. By 1780 Congress was making requisitions for specific supplies of corn, beef, pork and other necessities—an inefficient system that kept the army barely alive.
Starting in 1776, the Congress sought to raise money by loans from wealthy individuals, promising to redeem the bonds after the war. The bonds were in fact redeemed and 1791 at face value, but the scheme raised little money because Americans had little specie, and many of the rich merchants were supporters of the Crown. Starting in 1776, the French secretly supplied the Americans with money, gunpowder and munitions in order to weaken its arch enemy, Great Britain. When France officially entered the war in 1778, the subsidies continued, and the French government, as well as bankers in Paris and Amsterdam loaned large sums to the American war effort. These loans were repaid in full in the 1790s.
The U.S. Constitution, adopted in 1787, established that the entire nation was a unified, or common market, with no internal tariffs or taxes on interstate commerce. The extent of federal power was much debated, with Alexander Hamilton
taking a very broad view as the first secretary of the treasury
during the presidential administration of George Washington
. He succeeded in building a strong national credit based on taking over the state debts and bundling them with the old national debt into new securities sold to the wealthy. They in turn now had an interest in keeping the new government solvent. Hamilton funded the debt with tariffs on imported goods and a highly controversial tax on whiskey. Hamilton believed the United States should pursue economic growth through diversified shipping, manufacturing, and banking. He sought and achieved Congressional authority to create the First Bank of the United States
in 1791; the charter lasted until 1811.
Thomas Jefferson
and James Madison
opposed a strong central government (and, consequently, most of Hamilton's economic policies), but they could not stop Hamilton, who wielded immense power and political clout in the Washington administration. In 1801, however, Jefferson became president and turned to promoting a more decentralized, agrarian democracy called Jeffersonian democracy
. (He based his philosophy on protecting the common man from political and economic tyranny. He particularly praised small farmers as "the most valuable citizens.") However, Jefferson did not change Hamilton's basic policies. As president in 1811 Madison let the bank charter expire, but the War of 1812
proved the need for a national bank and Madison reversed positions. The Second Bank of the United States
was established in 1816, with a 20 year charter.
Cotton, at first a small-scale crop in the South, boomed following Eli Whitney
's invention in 1793 of the cotton gin
, a machine that separated raw cotton from seeds and other waste. Soon, large plantations, based on slave labor, expanded in the richest lands from the Carolinas westward to Texas. The raw cotton was shipped to textile mills in Britain, France and New England.
Millions moved to the more fertile farmland of the Midwest. States built roads and waterways, such as the Cumberland Pike (1818) and the Erie Canal
(1825), opening up markets for western farm products. The Whig Party supported Clay's American System
, which proposed to build internal improvements (e.g. roads, canals and harbors), protect industry, and create a strong national bank. The Whig legislation program was blocked at the national level by the Democrats, but similar modernization programs were enacted in most states on a bipartisan basis.
President Andrew Jackson
(1829–1837), leader of the new Democratic Party, opposed the Second Bank of the United States, which he believed favored the entrenched interests of rich. When he was elected for a second term, Jackson blocked the renewal of the bank's charter. Jackson opposed paper money and demanded the government be paid in gold and silver coins. The Panic of 1837
stopped business growth for three years.
Panics did not curtail rapid U.S. economic growth during the 19th century. Long term demographic growth, expansion into new farmlands, and creation of new factories continued. New inventions and capital investment led to the creation of new industries and economic growth. As transportation improved, new markets continuously opened. The steamboat
made river traffic faster and cheaper, but development of railroads had an even greater effect, opening up vast stretches of new territory for development. Like canals and roads, railroads received large amounts of government assistance in their early building years in the form of land grants. But unlike other forms of transportation, railroads also attracted a good deal of domestic and European private investment.
Nevertheless, a combination of vision and foreign investment, combined with the discovery of gold and a major commitment of America's public and private wealth, enabled the nation to develop a large-scale railroad system, establishing the base for the country's industrialization.
, organized in 1856, represented the industrialized North. In 1860, Republicans and their presidential candidate, Abraham Lincoln
called for ending the expansion of slavery and instead expanding industry, commerce and business. In 1861, they successfully pushed adoption of a protective tariff
. In 1862, the first Pacific railroad was chartered. In 1863 a national banking system was established to finance the American Civil War
; in every city a "First National Bank" was established, and many still exist.
The devastation of the South was great and poverty ensued; incomes of whites dropped, but income of the former slaves rose. During Reconstruction railroad construction was heavily subsidized (with much corruption), but the region maintained its dependence on cotton. Former slaves became wage laborers, tenant farmer
s, or sharecroppers. They were joined by many poor whites, as the population grew faster than the economy. As late as 1940 the only significant manufacturing industries were textile mills in the Carolinas, and some steel in Alabama.
The industrial advantages of the North over the South
helped secure a Northern victory in the American Civil War
(1861–1865). The Northern victory sealed the destiny of the nation and its economic system. The slave-labor system was abolished; the world price of cotton plunged, making the large southern cotton plantations much less profitable. Northern industry, which had expanded rapidly before and during the war, surged ahead. Industrialists came to dominate many aspects of the nation's life, including social and political affairs.
The rapid economic development following the Civil War laid the groundwork for the modern U.S. industrial economy. By 1890, the USA leaped ahead of Britain for first place in manufacturing output.
An explosion of new discoveries and inventions took place, a process called the "Second Industrial Revolution
." Railroads greatly expanded the mileage and built stronger tracks and bridges that handled heavier cars and locomotives, carrying far more goods and people at lower rates. Refrigeration railroad cars came into use. The telephone, phonograph
, typewriter
and electric light were invented. By the dawn of the 20th century, cars had begun to replace horse-drawn carriages.
Parallel to these achievements was the development of the nation's industrial infrastructure. Coal was found in abundance in the Appalachian Mountains
from Pennsylvania south to Kentucky
. Oil was discovered in western Pennsylvania; it was mainly used for lubricants and for kerosene for lamps. Large iron ore mines opened in the Lake Superior
region of the upper Midwest. Steel mill
s thrived in places where these coal and iron ore could be brought together to produce steel. Large copper and silver mines opened, followed by lead mines and cement factories.
In 1913 Henry Ford
introduced the assembly line
, a step in the process that became known as mass-production. Frederick W. Taylor pioneered the field of scientific management in the late 19th century, carefully plotting the functions of various workers and then devising new, more efficient ways for them to do their jobs. After 1910 mass production was sped by the electrification of factories, which replaced water power.
The "Gilded Age
" of the second half of the 19th century was the epoch of tycoons. Many Americans came to idealize these businessmen who amassed vast financial empires. Often their success lay in seeing the long-range potential for a new service or product, as John D. Rockefeller
did with oil. They were fierce competitors, single-minded in their pursuit of financial success and power. Other giants in addition to Rockefeller and Ford included Jay Gould
, who made his money in railroads; J. Pierpont Morgan, banking; and Andrew Carnegie
, steel. Some tycoons were honest according to business standards of their day; others, however, used force, bribery, and guile to achieve their wealth and power. For better or worse, business interests acquired significant influence over government. Morgan operated on a grand scale in both his private and business life. He and his companions gambled, sailed yachts, gave lavish parties, and built palatial homes; Morgan was also a lay leader of the Episcopal Church
and one of the world's leading art collectors. In contrast, men such as Rockefeller and Ford exhibited puritanical qualities. They retained small-town values and lifestyles. As church-goers, they felt a sense of responsibility to others. They believed that personal virtues could bring success; theirs was the gospel of work and thrift. Later their heirs would establish the largest philanthropic foundations in America. While upper-class European intellectuals generally looked on commerce with disdain, most Americans—living in a society with a more fluid class structure—enthusiastically embraced the idea of moneymaking. They enjoyed the risk and excitement of business enterprise, as well as the higher living standards and potential rewards of power and acclaim that business success brought.
The Gilded Age saw the greatest period of economic growth in American history. After the short-lived panic of 1873
, the economy recovered with the advent of hard money policies and industrialization. From 1869 to 1879, the US economy grew at a rate of 6.8% for real GDP and 4.5% for real GDP per capita, despite the panic of 1873
. The economy repeated this period of growth in the 1880s, in which the wealth of the nation grew at an annual rate of 3.8%, while the GDP was also doubled. Economist Milton Friedman states that for the 1880s:
However, Raymond W. Goldsmith
, who originated the figures Friedman gives in this statement, had reservations about the data, stating that "a few of these are too much influenced by the cyclical position of the benchmark years or by possible errors in the estimates for the initial or terminal year to constitute measures of long-term trend." Goldsmith specifically compared his figures for the 1880s and 1890s, stating "that while 1880 and 1890 were years of prosperity, 1900 marked a cyclical trough, and that measures of economic activity eliminating trend are considerably higher for the 'eighties than for the 'nineties."
Austrian Economist and scholar Murray Rothbard stated that for the 1880s:
Capital investment also increased tremondously during the 1880s, increasing nearly 500%, while capital formation doubled during the decade. Rothbard states that:
Long-term interest rates also declined to 3 to 3.5% for the first time, reaching the same level as Britain and 17th century Holland.
The American labor movement
began with the first significant labor union, the Knights of Labor
in 1869. The Knights collapsed in the 1880s and were displaced by strong international unions that banded together as the American Federation of Labor
under Samuel Gompers
. Rejecting socialism, the AFL unions negotiated with owners for higher wages and better working conditions. Union growth was slow until 1900, then grew to a peak during World War I.
To modernize traditional agriculture reformers founded the Grange movement
, in 1867. Federal land grants helped each state create an agricultural college and a network of extension agents who demonstrated modern techniques to farmers. Wheat and cotton farmers in the 1890s supported the Populist
movement, but failed in their demands for free silver and inflation. Instead the 1896 election committed the nation to the gold standard and a program of sustained industrialization.
During the period, a series of recessions happened.
Panic of 1873
had New York Stock Exchange closed for ten days, of the country's 364 railroads, 89 went bankrupt, a total of 18,000 businesses failed between 1873 and 1875, unemployment reached 14% by 1876, during a time which became known as the Long Depression
.
The end of the Gilded Age coincided with the Panic of 1893
, a deep depression that lasted until 1897 and marked a major political realignment in the election of 1896.
In the early years of American history, most political leaders were reluctant to involve the federal government too heavily in the private sector, except in the area of transportation. In general, they accepted the concept of laissez-faire
, a doctrine opposing government interference in the economy except to maintain law and order. This attitude started to change during the latter part of the 19th century, when small business, farm, and labor movements began asking the government to intercede on their behalf.
By the turn of the century, a middle class had developed that was leery of both the business elite and the somewhat radical political movements of farmers and laborers in the Midwest and West. Known as Progressives, these people favored government regulation of business practices to, in their minds, ensure competition and free enterprise. Congress enacted a law regulating railroads in 1887 (the Interstate Commerce Act), and one preventing large firms from controlling a single industry in 1890 (the Sherman Antitrust Act
). These laws were not rigorously enforced, however, until the years between 1900 and 1920, when Republican President Theodore Roosevelt
(1901–1909), Democratic President Woodrow Wilson
(1913–1921), and others sympathetic to the views of the Progressives came to power. Many of today's U.S. regulatory agencies were created during these years, including the Interstate Commerce Commission
and the Federal Trade Commission
. Ida M. Tarbell
wrote a series of articles against the Standard Oil
monopoly. The series helped pave the way for the breakup of the monopoly.
Muckrakers were journalists who encouraged readers to demand more regulation of business. Upton Sinclair
's The Jungle
(1906) showed America the horrors of the Chicago Union Stock Yards
, a giant complex of meat processing that developed in the 1870s. The federal government responded to Sinclair's book with the new regulatory Food and Drug Administration
.
When Democrat Woodrow Wilson
was elected President with a Democratic Congress in 1912 he implemented a series of progressive policies. In 1913, the Sixteenth Amendment
was ratified, and the income tax
was instituted in the United States. Wilson resolved the longstanding debates over tariffs and antitrust, and created the Federal Reserve, a complex business-government partnership that to this day dominates the financial world.
In 1913, Henry Ford
, adopted the moving assembly line, with each worker doing one simple task in the production of automobiles. Taking his cue from developments during the progressive era, Ford offered a very generous wage—$5 a day—to his workers, arguing that a mass production
enterprise could not survive if average workers could not buy the goods. However, the wage increase did not extend to women, and Ford expanded the company's Sociological Department to monitor his workers and ensure that they did not spend their new found bounty on "vice and cheap thrills."
Electrification
in the U.S. started in industry ca. 1900 and by 1930 about 80% of power used in industry was electric. Electric utilities with central generating stations using steam turbine
s greatly lowered the cost of power with businesses and houses in cities becoming electrified.
Electric street railways developed into a major mode of transportation, and electric inter-urban service connected many cities in the northeast and mid-west.
Tractors began being mass-produced.
Under Republican President Warren G. Harding
, who called for normalcy and an end to high wartime taxes, Secretary of the Treasury Andrew Mellon raised the tariff, cut other taxes, and used the large surplus to reduce the federal debt by about a third from 1920 to 1930. Secretary of Commerce Herbert Hoover
worked to introduce efficiency, by regulating
business practices. This period of prosperity, along with the culture of the time, was known as the Roaring Twenties
. The rapid growth of the automobile industry stimulated industries such as oil, glass, and road-building. Tourism soared and consumers with cars had a much wider radius for their shopping. Small cities prospered, and large cities had their best decade ever, with a boom in construction of offices, factories and homes. The new electric power industry transformed both business and everyday life. Telephones and electricity spread to the countryside, but farmers never recovered from the wartime bubble in land prices. Millions migrated to nearby cities. However, in October 1929, the Stock market crash
ed and banks began to fail in the Wall Street Crash of 1929
.
Following the stock market crash, the economy plunged into the Great Depression
. The Federal Reserve Board did not cause the depression but it made no effort to intervene by helping banks. The money supply fell by one-third, and it was hard to get a loan. In his last year as president, Herbert Hoover
passed a massive tax increase to boost sagging federal revenues, and signed the protectionist Smoot-Hawley Tariff, which incited retaliation by Canada, Britain, Germany and other trading partners. Economists generally agree that these measures deepened an already serious crisis. By 1932, the unemployment rate was 25%. Conditions were worse in heavy industry, lumbering, export agriculture (cotton, wheat, tobacco), and mining. Conditions were not quite as bad in white collar sectors and in light manufacturing.
Franklin Delano Roosevelt was elected President in 1932 without a specific program. He relied on a highly eclectic group of advisors who patched together many programs, known as the New Deal
.
Government spending increased from 8.0% of GNP under Hoover in 1932 to 10.2% of GNP in 1936. While Roosevelt balanced the "regular" budget the emergency budget was funded by debt, which increased from 33.6% of GNP in 1932 to 40.9% in 1936. Deficit spending
had been recommended by some economists, most notably John Maynard Keynes
in Britain. Roosevelt met Keynes but did not pay attention to his recommendations. After a meeting with Keynes, who kept drawing diagrams, Roosevelt remarked that "He must be a mathematician rather than a political economist."
The extent to which the spending for relief and public works provided a sufficient stimulus to revive the U.S. economy, or whether it harmed the economy, is also debated. If one defines economic health entirely by the gross domestic product, the U.S. had gotten back on track by 1934, and made a full recovery by 1936, but as Roosevelt said, one third of the nation was ill fed, ill-housed and ill-clothed. See Chart 3. GNP was 34% higher in 1936 than 1932, and 58% higher in 1940 on the eve of war. The economy grew 58% from 1932 to 1940 in 8 years of peacetime, and then grew another 56% from 1940 to 1945 in 5 years of wartime. The unemployment rate fell from 25.2% in 1932 to 13.9% in 1940 when the draft started. During the war the economy operated under so many different conditions that comparison is impossible with peacetime, such as massive spending, price controls, bond campaigns, controls over raw materials, prohibitions on new housing and new automobiles, rationing, guaranteed cost-plus profits, subsidized wages, and the draft of 12 million soldiers.
In 1995 conservative economist Robert Whaples from Wake Forest University
stated that measuring the effect of the New Deal remains a thorny issue for economists because it's so difficult to measure the effects it had on the country. One small survey by Whaples showed that 49% of those economists surveyed felt that the New Deal lengthened and deepened the depression, while 51% disagreed. The same survey also showed that only 5% of professional historians and 27% of professional economists felt the same way. However, economist Eric Rauchway of the University of California
stated "very few people disapprove of most of the New Deal reforms," which include Social Security, the Securities and Exchange Commission, the Federal Deposit Insurance Corp., and Fannie Mae. Regardless, unemployment peaked in 1932 at 25% and was reduced to 13.9% by 1940.
As Broadus Mitchell summarized, "Most indexes worsened until the summer of 1932, which may be called the low point of the depression economically and psychologically." Economic indicators show the American economy declined until February 1933. After Roosevelt took office, there began a steady, sharp upward recovery that persisted until the brief Recession of 1937–1938 (see graph) after which they continued their upward climb. Thus the Federal Reserve Index of Industrial Production bottomed at 52.8 on July 1, 1932 and was practically unchanged at 54.3 on March 1, 1933; however by July 1, 1933, it had climbed to 85.5 (with 1935–39 = 100, and for comparison 2005 = 1,342).
1 in 1929 dollars
2 1935–39 = 100
The War Production Board
coordinated the nation's productive capabilities so that military priorities would be met. Converted consumer-products plants filled many military orders. Automakers built tanks and aircraft, for example, making the United States the "arsenal of democracy." In an effort to prevent rising national income and scarce consumer products to cause inflation, the newly created Office of Price Administration
controlled rents on some dwellings, rationed consumer items ranging from sugar to gasoline, and otherwise tried to restrain price increases.
Six million women took jobs in manufacturing and production; most were newly created temporary jobs in munitions. Some were replacing men away in the military. These working women were symbolized by the fictional character of Rosie the Riveter
. After the war many women returned to household work as men returned from military service. The nation turned to the suburbs, as a pent-up demand for new housing was finally unleashed.
and Neil H. Jacoby
. ""I am now a Keynesian in economics," proclaimed Republican President Richard Nixon in 1969.
The "Baby Boom" saw a dramatic increase in fertility in the period 1942–1957; it was caused by delayed marriages and childbearing during depression years, a surge in prosperity, a demand for suburban single-family homes (as opposed to inner city apartments) and new optimism about the future. The boom crested about 1957, then slowly declined.
(1963–69) dreamed of creating a "Great Society
", and began many new social programs to that end, such as Medicaid
and Medicare
. The government financed some of private industry's research and development throughout these decades, most notably ARPANET
(which would become the Internet).
In the late 1960s it was apparent to some that this juggernaut of economic growth was slowing down, and it began to become visibly apparent in the early 1970s. The United States grew increasingly dependent on oil importation from OPEC
after peaking production
in 1970, resulting in oil supply shocks in 1973
and 1979
. Stagflation
gripped the nation, and the government experimented with wage and price controls
under President Nixon
.
The Bretton Woods Agreement collapsed in 1971–1972, and President Nixon closed the gold window at the Federal Reserve, taking the United States entirely off the gold standard
.
President Gerald Ford
introduced the slogan, "Whip Inflation Now
" (WIN). In 1974, productivity shrunk by 1.5%, though this soon recovered. In 1976, Jimmy Carter
won the Presidency. Carter would later take much of the blame for the even more turbulent economic times to come, though some say circumstances were outside his control. Inflation continued to climb skyward. Productivity growth was small, when not negative. Interest rates remained high, with the prime reaching 20% in January 1981; Art Buchwald
quipped that 1980 would go down in history as the year when it was cheaper to borrow money from the Mafia
than the local bank.
Unemployment dropped mostly steadily from 1975 to 1979, although it then began to rise sharply.
This period also saw the increased rise of the environmental and consumer movements, and the government established new regulations and regulatory agencies such as the Occupational Safety and Health Administration
, the Consumer Product Safety Commission
, the Nuclear Regulatory Commission
, and others.
, was cleared by Congress. Transportation deregulation accelerated in 1980, with the deregulation of railroads and trucking. Deregulation of interstate buses followed in 1982. In addition to transportation deregulation, savings and loan associations and banks were partially deregulated with the Depository Institutions Deregulation and Monetary Control Act
in 1980 and the Garn–St. Germain Depository Institutions Act in 1982.
On a broader front, the economy initially recovered at a brisk pace from the 1973–75 recession
. Incoming president Jimmy Carter
instituted a large fiscal stimulus package in 1977 in order to boost the economy. However, inflation began a steep rise beginning in late 1978, and rose by double digits following the 1979 energy crisis
. In order to combat inflation, Carter appointed Paul Volcker
to the Federal Reserve, who raised interest rates and caused a sharp recession in the first six months of 1980. In March 1980, Carter introduced his own policies for reducing inflation, and the Federal Reserve brought down interest rates to cooperate with the initiatives.
During the 1980 recession, manufacturing shed 1.1 million jobs, while service industries remained intact. Employment in automotive manufacturing in particular suffered, experiencing a 33% reduction by the end of the recession. Collectively these factors contributed to the election of Ronald Reagan
in 1980. The Federal Reserve once again began to raise interest rates in 1981, which plunged the economy back into recession. Unemployment rose to a peak of 10.8% in December 1982, a post-war high.
In 1981, Ronald Reagan
introduced Reaganomics
. That is, fiscally-expansive economic policies, cutting marginal federal income tax rates by 25%. Inflation dropped dramatically from 13.5% annually in 1980 to just 3% annually in 1983 due to a short recession and the Federal Reserve Chairman Paul Volcker
's tighter control of the money supply and interest rates. Real GDP began to grow after contracting in 1980 and 1982. The unemployment rate continued to rise to a peak of 10.8% by late 1982, but dropped well under 6% unemployment at the end of Reagan's presidency in January 1989. The gap between those in the upper socioeconomic levels and those in the lower socioeconomic levels increased during Reagan's presidency, and the federal debt spawned by his policies tripled (from $930 billion in 1981 to $2.6 trillion in 1988), reaching record levels. Though debt almost always increased under every president in the latter half of the 20th century, it declined as a percentage of GDP under all Presidents after 1950 and prior to Reagan. In addition to the fiscal deficits, the U.S. started to have large trade deficits. Also it was during his second term that the Tax Reform Act of 1986
was passed. Vice President George H. W. Bush
was elected to succeed Reagan in 1988. The early Bush Presidency's economic policies were sometimes seen as a continuation of Reagan's policies, but in the early 1990s, Bush went back on a promise and increased taxes in a compromise with Congressional Democrats. He ended his presidency on a moderate note, signing regulatory bills such as the Americans With Disabilities Act, and negotiating the North American Free Trade Agreement
. In 1992, Bush and third-party candidate Ross Perot
lost to Democrat Bill Clinton
.
The advent of deindustrialization in the late 1960s and early 1970s saw income inequality increase dramatically to levels never seen before, but at the same time never before in the United States could consumers buy so many goods even with the inflation of the 1970s. In 1968, the U.S. Gini coefficient
was 0.386, about equivalent to Japan (.381), though still above that of the United Kingdom (.368) and Canada (.331). However, in the years since, increased free trade, globalization and high corporate taxes have caused U.S. companies to begin to shift their manufacturing and heavy industrial operations to second- and third-world countries with lower labor costs, income inequality in the U.S. has risen dramatically. In 2005, the American Gini coefficient had reached 0.469, similar to that of Malaysia and the Philippines, both at .461, and well-ahead of China (.440). Critics of economic policies favored by Republican and Democratic administrations since the 1960s, particularly those expanding "free trade" and "open markets" say that these policies, though benefiting trading as well as the cost of products in the U.S., could have taken their own on the prosperity of the American middle-class. But in this period, consumers were buying as never before with so many products and goods at such low costs and in high quantities.
During the 1990s, the national debt increased by 75%, GDP rose by 69%, and the stock market as measured by the S&P 500
grew more than threefold.
From 1994 to 2000 real output increased, inflation was manageable and unemployment dropped to below 5%, resulting in a soaring stock market known as the Dot-com boom. The second half of the 1990s was characterized by well-publicized Initial Public Offerings of High-tech and "dot-com
" companies. By 2000, however, it was evident a bubble in stock valuations had occurred, such that beginning in March 2000, the market would give back some 50% to 75% of the growth of the 1990s. The economy worsened in 2001 with output increasing only 0.3% and unemployment and business failures rising substantially, and triggering a recession
that is often blamed on the September 11 attacks.
An additional factor in the fall of the US markets and in investor confidence included numerous corporate scandals.
Through 2001 to 2007, the red-hot housing market across the United States fueled a false sense of security regarding the strength of the U.S. economy.
In 2008 a perfect storm of economic disasters hit the country and indeed the entire world. The most serious began with the collapse of housing bubbles
in California and Florida, and the collapse of housing prices and the construction industries. Millions of mortgages (averaging about $200,000 each) had been bundled into securities called collateralized debt obligation
s that were resold worldwide. Many banks and hedge funds had borrowed hundreds of billions of dollars to buy these securities, which were now "toxic" because their value was unknown and no one wanted to buy them.
A series of the largest banks in the U.S. and Europe collapsed; some went bankrupt, such as Lehman Brothers
with $690 billion in assets; others such as the leading insurance company AIG
, the leading bank Citigroup
, and the two largest mortgage companies were bailed out by the government. Congress voted $700 billion in bailout money, and the Treasury and Federal Reserve committed trillions of dollars to shoring up the financial system, but the measures did not reverse the declines. Banks drastically tightened their lending policies, despite infusions of federal money. It became much harder to get car loans, for example. The government for the first time took major ownership positions in the largest banks. The stock market plunged 40%, wiping out tens of trillions of dollars in wealth; housing prices fell 20% nationwide wiping out trillions more. By late 2008 distress was spreading beyond the financial and housing sectors, especially as the "Big Three" of the automobile industry (General Motors
, Ford and Chrysler
) were on the verge of bankruptcy, and the retail sector showed major weaknesses. Critics of the $700 billion Troubled Assets Relief Program
(TARP) expressed anger that much of the TARP money that has been distributed to banks is seemingly unaccounted for, with banks being secretive on the issue.
President Barack Obama
signed the American Recovery and Reinvestment Act of 2009
in February 2009; the bill provides $787 billion in stimulus through a combination of spending and tax cuts. The plan is largely based on the Keynesian theory
that government spending should offset the fall in private spending during an economic downturn; otherwise the fall in private spending may perpetuate itself and productive resources, such as the labor hours of the unemployed, will be wasted. Critics claim that government spending cannot offset a fall in private spending because government must borrow money from the private sector in order to add money to it. However, most economists do not think such "crowding out
" is an issue when interest rates are near zero
and the economy is stagnant
. Opponents of the stimulus also point to problems of possible future inflation and government debt
caused by such a large expenditure.
European colonization of the Americas
The start of the European colonization of the Americas is typically dated to 1492. The first Europeans to reach the Americas were the Vikings during the 11th century, who established several colonies in Greenland and one short-lived settlement in present day Newfoundland...
in the 16th, 17th, and 18th centuries. Marginal colonial economies grew into 13 small, independent farming economies, which joined together in 1776 to form the United States of America. In 230 years the United States grew to a huge, integrated, industrialized economy that makes up nearly a quarter of the world economy
World economy
The world economy, or global economy, generally refers to the economy, which is based on economies of all of the world's countries, national economies. Also global economy can be seen as the economy of global society and national economies – as economies of local societies, making the global one....
. The main causes were a large unified market, a supportive political-legal system, vast areas of highly productive farmlands, vast natural resources
Natural Resources
Natural Resources is a soul album released by Motown girl group Martha Reeves and the Vandellas in 1970 on the Gordy label. The album is significant for the Vietnam War ballad "I Should Be Proud" and the slow jam, "Love Guess Who"...
(especially timber, coal, iron, and oil), and an entrepreneurial spirit and commitment to investing in material and human capital. The economy has maintained high wages, attracting immigrants by the millions from all over the world. Technological and industrial factors played a major role.
Pre-colonial
In 1492, Christopher ColumbusChristopher Columbus
Christopher Columbus was an explorer, colonizer, and navigator, born in the Republic of Genoa, in northwestern Italy. Under the auspices of the Catholic Monarchs of Spain, he completed four voyages across the Atlantic Ocean that led to general European awareness of the American continents in the...
, sailing under the Spanish flag, set out to find Asia and happened upon a "New World
New World
The New World is one of the names used for the Western Hemisphere, specifically America and sometimes Oceania . The term originated in the late 15th century, when America had been recently discovered by European explorers, expanding the geographical horizon of the people of the European middle...
". For the next 100 years, Spanish, Portuguese, Dutch, English and French explorers sailed from Europe for the New World, looking for gold, riches, religious merit, honor, and imperial power. But north of Mexico there was little glory and less gold, so most did not stay. The people who eventually did settle arrived later. In 1565 a small fort at St. Augustine, Florida
St. Augustine, Florida
St. Augustine is a city in the northeast section of Florida and the county seat of St. Johns County, Florida, United States. Founded in 1565 by Spanish explorer and admiral Pedro Menéndez de Avilés, it is the oldest continuously occupied European-established city and port in the continental United...
, was founded by the Spanish, and in 1607 a small band of settlers built England's first permanent settlement in what was to become the United States at Jamestown
Jamestown, Virginia
Jamestown was a settlement in the Colony of Virginia. Established by the Virginia Company of London as "James Fort" on May 14, 1607 , it was the first permanent English settlement in what is now the United States, following several earlier failed attempts, including the Lost Colony of Roanoke...
.
While they traded among themselves, Native Americans lacked immunities when European explorers began arriving after 1492, bringing new microbes. Their economic systems, for example the economy of the Iroquois
Economy of the Iroquois
The economy of the Iroquois originally focused on communal production and combined elements of both horticulture and hunter-gatherer systems. The tribes of the Iroquois Confederacy and other Northern Iroquoian-speaking peoples, including the Huron, lived in the region including what is now New...
, involved various combinations of hunting and gathering
Hunter-gatherer
A hunter-gatherer or forage society is one in which most or all food is obtained from wild plants and animals, in contrast to agricultural societies which rely mainly on domesticated species. Hunting and gathering was the ancestral subsistence mode of Homo, and all modern humans were...
and farming. Native American economies were profoundly altered by the arrival of Europeans and the resulting arrival of new diseases, influx of European goods, business relations with the Europeans regarding the fur trade
Fur trade
The fur trade is a worldwide industry dealing in the acquisition and sale of animal fur. Since the establishment of world market for in the early modern period furs of boreal, polar and cold temperate mammalian animals have been the most valued...
, acquisition of horses, firearms and alcohol, engagement in wars, loss of land, and confinement to reservations
Indian reservation
An American Indian reservation is an area of land managed by a Native American tribe under the United States Department of the Interior's Bureau of Indian Affairs...
.
Colonial era
Massachusetts
The Commonwealth of Massachusetts is a state in the New England region of the northeastern United States of America. It is bordered by Rhode Island and Connecticut to the south, New York to the west, and Vermont and New Hampshire to the north; at its east lies the Atlantic Ocean. As of the 2010...
wanted to create a purified religion in New England. Other colonies, such as Virginia, were founded principally as business ventures. England's success at colonizing what would become the United States was due in large part to its use of charter companies. Charter companies were groups of stockholders (usually merchants and wealthy landowners) who sought personal economic gain and, perhaps, wanted also to advance England's national goals. While the private sector financed the companies, the King provided each project with a charter or grant conferring economic rights as well as political and judicial authority. The colonies generally did not show quick profits, however, and the English investors often turned over their colonial charters to the settlers. The political implications, although not realized at the time, were enormous. The colonists were left to build their own lives, their own communities, and their own economy.
Throughout the colonies, people lived primarily on small farms and were self-sufficient. In the few small cities and among the larger plantations of South Carolina
South Carolina
South Carolina is a state in the Deep South of the United States that borders Georgia to the south, North Carolina to the north, and the Atlantic Ocean to the east. Originally part of the Province of Carolina, the Province of South Carolina was one of the 13 colonies that declared independence...
, and Virginia
Virginia
The Commonwealth of Virginia , is a U.S. state on the Atlantic Coast of the Southern United States. Virginia is nicknamed the "Old Dominion" and sometimes the "Mother of Presidents" after the eight U.S. presidents born there...
, some necessities and virtually all luxuries were imported in return for tobacco, rice, and indigo
Indigo dye
Indigo dye is an organic compound with a distinctive blue color . Historically, indigo was a natural dye extracted from plants, and this process was important economically because blue dyes were once rare. Nearly all indigo dye produced today — several thousand tons each year — is synthetic...
exports.
Small local industries emerged as the colonies grew, such as sawmills, and gristmills. Entrepreneurs established shipyards to build fishing fleets and, in time, trading vessels and built iron forges. By the 18th century, regional patterns of development had become clear: the New England
New England
New England is a region in the northeastern corner of the United States consisting of the six states of Maine, New Hampshire, Vermont, Massachusetts, Rhode Island, and Connecticut...
colonies relied on shipbuilding and sailing to generate wealth; plantations (many using slave
Slavery
Slavery is a system under which people are treated as property to be bought and sold, and are forced to work. Slaves can be held against their will from the time of their capture, purchase or birth, and deprived of the right to leave, to refuse to work, or to demand compensation...
labor) in Maryland
Maryland
Maryland is a U.S. state located in the Mid Atlantic region of the United States, bordering Virginia, West Virginia, and the District of Columbia to its south and west; Pennsylvania to its north; and Delaware to its east...
, Virginia, and the Carolinas grew tobacco, rice, and indigo; and the middle colonies of New York, Pennsylvania
Pennsylvania
The Commonwealth of Pennsylvania is a U.S. state that is located in the Northeastern and Mid-Atlantic regions of the United States. The state borders Delaware and Maryland to the south, West Virginia to the southwest, Ohio to the west, New York and Ontario, Canada, to the north, and New Jersey to...
, New Jersey
New Jersey
New Jersey is a state in the Northeastern and Middle Atlantic regions of the United States. , its population was 8,791,894. It is bordered on the north and east by the state of New York, on the southeast and south by the Atlantic Ocean, on the west by Pennsylvania and on the southwest by Delaware...
, and Delaware
Delaware
Delaware is a U.S. state located on the Atlantic Coast in the Mid-Atlantic region of the United States. It is bordered to the south and west by Maryland, and to the north by Pennsylvania...
shipped general crops and furs. Except for slaves, standards of living were generally high—higher, in fact, than in England itself.
New England
The New EnglandHistory of New England
This article presents the History of New England, the oldest clearly defined region of the United States, unique among U.S. geographic regions in that it is also a former political entity. While New England was originally inhabited by indigenous peoples, English Pilgrims and especially Puritans,...
region's economy grew steadily over the entire colonial era, despite the lack of a staple crop that could be exported. All the provinces, and many towns as well, tried to foster economic growth by subsidizing projects that improved the infrastructure, such as roads, bridges, inns and ferries. They gave bounties and subsidies or monopolies to sawmills, grist mills, iron mills, pulling mills (which treated cloth), salt works and glassworks. Most important, colonial legislatures set up a legal system that was conducive to business enterprise by resolving disputes, enforcing contracts, and protecting property rights. Hard work and entrepreneurship characterized the region, as the Puritans and Yankees endorsed the "Protestant Ethic
Protestant work ethic
The Protestant work ethic is a concept in sociology, economics and history, attributable to the work of Max Weber...
", which enjoined men to work hard as part of their divine calling.
The benefits of growth were widely distributed in New England, reaching from merchants to farmers to hired laborers. The rapidly growing population led to shortages of good farm land on which young families could establish themselves; one result was to delay marriage, and another was to move to new lands farther west. In the towns and cities, there was strong entrepreneurship, and a steady increase in the specialization of labor. Wages for men went up steadily before 1775; new occupations were opening for women, including weaving, teaching, and tailoring. The region bordered New France, and in the numerous wars the British poured money in to purchase supplies, build roads and pay colonial soldiers. The coastal ports began to specialize in fishing, international trade and shipbuilding—and after 1780 in whaling. Combined with a growing urban markets for farm products, these factors allowed the economy to flourish despite the lack of technological innovation.
American Revolution
Americans in the Thirteen Colonies demanded their rights as EnglishmenRights of Englishmen
The rights of Englishmen are the perceived traditional rights of British subjects. The notion refers to various constitutional documents that were created throughout various stages of English history, such as Magna Carta, the Declaration of Right , and others...
, as they saw it, to select their own representatives to govern and tax
No taxation without representation
"No taxation without representation" is a slogan originating during the 1750s and 1760s that summarized a primary grievance of the British colonists in the Thirteen Colonies, which was one of the major causes of the American Revolution...
them – which Britain refused. The Americans attempted resistance through boycotts of British manufactured items, but the British responded with a rejection of American rights and the Intolerable Acts
Intolerable Acts
The Intolerable Acts or the Coercive Acts are names used to describe a series of laws passed by the British Parliament in 1774 relating to Britain's colonies in North America...
of 1774. In turn, the Americans launched the American Revolution
American Revolution
The American Revolution was the political upheaval during the last half of the 18th century in which thirteen colonies in North America joined together to break free from the British Empire, combining to become the United States of America...
, resulting in an all-out war against the British
American Revolutionary War
The American Revolutionary War , the American War of Independence, or simply the Revolutionary War, began as a war between the Kingdom of Great Britain and thirteen British colonies in North America, and ended in a global war between several European great powers.The war was the result of the...
and to independence for the new United States of America. The British tried to crush the American economy with a blockade of all ports, but with 90% of the people in farming, and only 10% in cities, the American economy proved resilient and able to support a sustained war, which lasted 1775–1783.
American Revolution
The American Revolution was the political upheaval during the last half of the 18th century in which thirteen colonies in North America joined together to break free from the British Empire, combining to become the United States of America...
(1775–1783) brought a dedication to unalienable rights to "life, liberty, and the pursuit of happiness," which emphasize individual liberty and economic entrepreneurship, and simultaneously a commitment to the political values of Republicanism
Republicanism in the United States
Republicanism is the political value system that has been a major part of American civic thought since the American Revolution. It stresses liberty and inalienable rights as central values, makes the people as a whole sovereign, supports activist government to promote the common good, rejects...
, which emphasize civic virtue and duty.
Britain's war against the Americans, French and Spanish cost about £100 million. The Treasury borrowed 40% of the money it needed and raised the rest through an efficient system of taxation. Heavy spending brought France to the verge of bankruptcy and revolution.
Congress and the American states had no end of difficulty financing the war. In 1775 there was at most 12 million dollars in gold in the colonies, not nearly enough to cover current transactions, let alone on a major war. The British made the situation much worse by imposing a tight blockade on every American port, which cut off almost all imports and exports. One partial solution was to rely on volunteer support from militiamen, and donations from patriotic citizens. Another was to delay actual payments, pay soldiers and suppliers in depreciated currency, and promise it would be made good after the war. Indeed, in 1783 the soldiers and officers were given land grants to cover the wages they had earned but had not been paid during the war. Not until 1781, when Robert Morris was named Superintendent of Finance of the United States
Superintendent of Finance of the United States
The post of Superintendent of Finance of the United States was one of three executive offices created by the Congress of the Confederation in 1781. Another office, Agent of the Marine, was also create was not directly filled but devolved on to the Superintendent.The only person to hold the office...
, did the national government have a strong leader in financial matters. Morris used a French loan in 1782 to set up the private Bank of North America
Bank of North America
The Bank of North America was a private business chartered on December 31, 1781 by the Congress of the Confederation and opened on January 7, 1782, at the prodding of Superintendent of Finance Robert Morris. This was thus the nation's first de facto central bank. It was succeeded in its role as...
to finance the war. Seeking greater efficiency, Morris reduced the civil list, saved money by using competitive bidding for contracts, tightened accounting procedures, and demanded the federal government's full share of money and supplies from the states.
Congress used four main methods to cover the cost of the war, which cost about 66 million dollars in specie (gold and silver). Congress made two issues of paper money, in 1775–1780, and in 1780–81. The first issue amounted to 242 million dollars. This paper money would supposedly be redeemed for state taxes, but the holders were eventually paid off in 1791 at the rate of one cent on the dollar. By 1780, the paper money was "not worth a Continental", as people said, and a second issue of new currency was attempted. The second issue quickly became nearly worthless—but it was redeemed by the new federal government in 1791 at 100 cents on the dollar. At the same time the states, especially Virginia and the Carolinas, issued over 200 million dollars of their own currency. In effect, the paper money was a hidden tax on the people, and indeed was the only method of taxation that was possible at the time. The skyrocketing inflation was a hardship on the few people who had fixed incomes—but 90 percent of the people were farmers, and were not directly affected by that inflation. Debtors benefited by paying off their debts with depreciated paper. The greatest burden was borne by the soldiers of the Continental Army, whose wages—usually in arrears—declined in value every month, weakening their morale and adding to the hardships suffered by their families.
Beginning in 1777, Congress repeatedly asked the states to provide money. But the states had no system of taxation either, and were little help. By 1780 Congress was making requisitions for specific supplies of corn, beef, pork and other necessities—an inefficient system that kept the army barely alive.
Starting in 1776, the Congress sought to raise money by loans from wealthy individuals, promising to redeem the bonds after the war. The bonds were in fact redeemed and 1791 at face value, but the scheme raised little money because Americans had little specie, and many of the rich merchants were supporters of the Crown. Starting in 1776, the French secretly supplied the Americans with money, gunpowder and munitions in order to weaken its arch enemy, Great Britain. When France officially entered the war in 1778, the subsidies continued, and the French government, as well as bankers in Paris and Amsterdam loaned large sums to the American war effort. These loans were repaid in full in the 1790s.
New nation
Alexander Hamilton
Alexander Hamilton was a Founding Father, soldier, economist, political philosopher, one of America's first constitutional lawyers and the first United States Secretary of the Treasury...
taking a very broad view as the first secretary of the treasury
United States Secretary of the Treasury
The Secretary of the Treasury of the United States is the head of the United States Department of the Treasury, which is concerned with financial and monetary matters, and, until 2003, also with some issues of national security and defense. This position in the Federal Government of the United...
during the presidential administration of George Washington
George Washington
George Washington was the dominant military and political leader of the new United States of America from 1775 to 1799. He led the American victory over Great Britain in the American Revolutionary War as commander-in-chief of the Continental Army from 1775 to 1783, and presided over the writing of...
. He succeeded in building a strong national credit based on taking over the state debts and bundling them with the old national debt into new securities sold to the wealthy. They in turn now had an interest in keeping the new government solvent. Hamilton funded the debt with tariffs on imported goods and a highly controversial tax on whiskey. Hamilton believed the United States should pursue economic growth through diversified shipping, manufacturing, and banking. He sought and achieved Congressional authority to create the First Bank of the United States
First Bank of the United States
The First Bank of the United States is a National Historic Landmark located in Philadelphia, Pennsylvania within Independence National Historical Park.-Banking History:...
in 1791; the charter lasted until 1811.
Thomas Jefferson
Thomas Jefferson
Thomas Jefferson was the principal author of the United States Declaration of Independence and the Statute of Virginia for Religious Freedom , the third President of the United States and founder of the University of Virginia...
and James Madison
James Madison
James Madison, Jr. was an American statesman and political theorist. He was the fourth President of the United States and is hailed as the “Father of the Constitution” for being the primary author of the United States Constitution and at first an opponent of, and then a key author of the United...
opposed a strong central government (and, consequently, most of Hamilton's economic policies), but they could not stop Hamilton, who wielded immense power and political clout in the Washington administration. In 1801, however, Jefferson became president and turned to promoting a more decentralized, agrarian democracy called Jeffersonian democracy
Jeffersonian democracy
Jeffersonian Democracy, so named after its leading advocate Thomas Jefferson, is a term used to describe one of two dominant political outlooks and movements in the United States from the 1790s to the 1820s. The term was commonly used to refer to the Democratic-Republican Party which Jefferson...
. (He based his philosophy on protecting the common man from political and economic tyranny. He particularly praised small farmers as "the most valuable citizens.") However, Jefferson did not change Hamilton's basic policies. As president in 1811 Madison let the bank charter expire, but the War of 1812
War of 1812
The War of 1812 was a military conflict fought between the forces of the United States of America and those of the British Empire. The Americans declared war in 1812 for several reasons, including trade restrictions because of Britain's ongoing war with France, impressment of American merchant...
proved the need for a national bank and Madison reversed positions. The Second Bank of the United States
Second Bank of the United States
The Second Bank of the United States was chartered in 1816, five years after the First Bank of the United States lost its own charter. The Second Bank of the United States was initially headquartered in Carpenters' Hall, Philadelphia, the same as the First Bank, and had branches throughout the...
was established in 1816, with a 20 year charter.
Expansion and growth
Eli Whitney
Eli Whitney was an American inventor best known for inventing the cotton gin. This was one of the key inventions of the Industrial Revolution and shaped the economy of the Antebellum South...
's invention in 1793 of the cotton gin
Cotton gin
A cotton gin is a machine that quickly and easily separates cotton fibers from their seeds, a job formerly performed painstakingly by hand...
, a machine that separated raw cotton from seeds and other waste. Soon, large plantations, based on slave labor, expanded in the richest lands from the Carolinas westward to Texas. The raw cotton was shipped to textile mills in Britain, France and New England.
Millions moved to the more fertile farmland of the Midwest. States built roads and waterways, such as the Cumberland Pike (1818) and the Erie Canal
Erie Canal
The Erie Canal is a waterway in New York that runs about from Albany, New York, on the Hudson River to Buffalo, New York, at Lake Erie, completing a navigable water route from the Atlantic Ocean to the Great Lakes. The canal contains 36 locks and encompasses a total elevation differential of...
(1825), opening up markets for western farm products. The Whig Party supported Clay's American System
American System (economic plan)
The American System, originally called "The American Way", was a mercantilist economic plan that played a prominent role in American policy during the first half of the 19th century...
, which proposed to build internal improvements (e.g. roads, canals and harbors), protect industry, and create a strong national bank. The Whig legislation program was blocked at the national level by the Democrats, but similar modernization programs were enacted in most states on a bipartisan basis.
Andrew Jackson
Andrew Jackson was the seventh President of the United States . Based in frontier Tennessee, Jackson was a politician and army general who defeated the Creek Indians at the Battle of Horseshoe Bend , and the British at the Battle of New Orleans...
(1829–1837), leader of the new Democratic Party, opposed the Second Bank of the United States, which he believed favored the entrenched interests of rich. When he was elected for a second term, Jackson blocked the renewal of the bank's charter. Jackson opposed paper money and demanded the government be paid in gold and silver coins. The Panic of 1837
Panic of 1837
The Panic of 1837 was a financial crisis or market correction in the United States built on a speculative fever. The end of the Second Bank of the United States had produced a period of runaway inflation, but on May 10, 1837 in New York City, every bank began to accept payment only in specie ,...
stopped business growth for three years.
Railroads
Railroads made a decisive impact on the U.S. economy especially in the 1850–1873 era, making possible the transition to an urban industrial nation with high finance and advanced managerial skills. Railroads opened up remote areas, drastically cut the cost of moving freight as well as passenger travel, and stimulated new industries such as steel and telegraphy, as well as the profession of civil engineering. They greatly increased the importance of such hubs as made cities such as Atlanta, Billings, Chicago, and Dallas. Railroad executives invented modern methods for running large-scale business operations, creating a blueprint that all large corporations basically followed. They created career tracks that took 18 year old boys and turned them into brakemen, conductors and engineers. They were first to encounter managerial complexities, labor union issues, and problems of geographical competition. Due to these radical innovations, the railroad became the first large-scale business enterprise and the model for most large corporations.Panics did not curtail rapid U.S. economic growth during the 19th century. Long term demographic growth, expansion into new farmlands, and creation of new factories continued. New inventions and capital investment led to the creation of new industries and economic growth. As transportation improved, new markets continuously opened. The steamboat
Steamboat
A steamboat or steamship, sometimes called a steamer, is a ship in which the primary method of propulsion is steam power, typically driving propellers or paddlewheels...
made river traffic faster and cheaper, but development of railroads had an even greater effect, opening up vast stretches of new territory for development. Like canals and roads, railroads received large amounts of government assistance in their early building years in the form of land grants. But unlike other forms of transportation, railroads also attracted a good deal of domestic and European private investment.
Nevertheless, a combination of vision and foreign investment, combined with the discovery of gold and a major commitment of America's public and private wealth, enabled the nation to develop a large-scale railroad system, establishing the base for the country's industrialization.
| Table 1: RAILROAD MILEAGE INCREASE BY GROUPS OF STATES | |||||
1850 | 1860 | 1870 | 1880 | 1890 | |
New England | 2,507 | 3,660 | 4,494 | 5,982 | 6,831 |
Middle States | 3,202 | 6,705 | 10,964 | 15,872 | 21,536 |
Southern States | 2,036 | 8,838 | 11,192 | 14,778 | 29,209 |
Western States and Territories | 1,276 | 11,400 | 24,587 | 52,589 | 62,394 |
Pacific States and Territories | 23 | 1,677 | 4,080 | 9,804 | |
TOTAL USA | 9,021 | 30,626 | 52,914 | 93,301 | 129,774 |
SOURCE: Chauncey M. Depew (ed.), One Hundred Years of American Commerce 1795–1895 p 111 | |||||
Urbanization
By 1860, on the eve of Civil War, 16% of the people lived in cities with 2500 or more people; a third of the nation's income came from manufacturing. Urbanized industry was limited primarily to the Northeast; cotton cloth production was the leading industry, with the manufacture of shoes, woolen clothing, and machinery also expanding. Most of the workers in the new factories were immigrants or their children. Between 1845 and 1855, some 300,000 European immigrants arrived annually. Many remained in eastern cities, especially mill towns and mining camps, while those with farm experience and some savings bought farms in the West.Civil War and Reconstruction: 1860s
The South, on the other hand, remained rural and dependent on the North for capital and manufactured goods. Southern economic interests, including slavery, could be protected by political power only as long as the South controlled the federal government. The Republican PartyRepublican Party (United States)
The Republican Party is one of the two major contemporary political parties in the United States, along with the Democratic Party. Founded by anti-slavery expansion activists in 1854, it is often called the GOP . The party's platform generally reflects American conservatism in the U.S...
, organized in 1856, represented the industrialized North. In 1860, Republicans and their presidential candidate, Abraham Lincoln
Abraham Lincoln
Abraham Lincoln was the 16th President of the United States, serving from March 1861 until his assassination in April 1865. He successfully led his country through a great constitutional, military and moral crisis – the American Civil War – preserving the Union, while ending slavery, and...
called for ending the expansion of slavery and instead expanding industry, commerce and business. In 1861, they successfully pushed adoption of a protective tariff
Tariff in American history
Tariffs in United States history have played different roles in trade policy, political debates and the nation's economic history. Tariffs were the largest source of federal revenue from the 1790s to the eve of World War I, until it was surpassed by income taxes. Tariffs are taxes on imports and...
. In 1862, the first Pacific railroad was chartered. In 1863 a national banking system was established to finance the American Civil War
American Civil War
The American Civil War was a civil war fought in the United States of America. In response to the election of Abraham Lincoln as President of the United States, 11 southern slave states declared their secession from the United States and formed the Confederate States of America ; the other 25...
; in every city a "First National Bank" was established, and many still exist.
The devastation of the South was great and poverty ensued; incomes of whites dropped, but income of the former slaves rose. During Reconstruction railroad construction was heavily subsidized (with much corruption), but the region maintained its dependence on cotton. Former slaves became wage laborers, tenant farmer
Tenant farmer
A tenant farmer is one who resides on and farms land owned by a landlord. Tenant farming is an agricultural production system in which landowners contribute their land and often a measure of operating capital and management; while tenant farmers contribute their labor along with at times varying...
s, or sharecroppers. They were joined by many poor whites, as the population grew faster than the economy. As late as 1940 the only significant manufacturing industries were textile mills in the Carolinas, and some steel in Alabama.
The industrial advantages of the North over the South
Economy of the Confederate States of America
The Confederate States of America had an agrarian-based economy that relied heavily on slave-worked plantations for the production of cotton for export to Europe and the northern US states. If ranked as an independent nation, it would have been the fourth richest country of the world in 1860...
helped secure a Northern victory in the American Civil War
American Civil War
The American Civil War was a civil war fought in the United States of America. In response to the election of Abraham Lincoln as President of the United States, 11 southern slave states declared their secession from the United States and formed the Confederate States of America ; the other 25...
(1861–1865). The Northern victory sealed the destiny of the nation and its economic system. The slave-labor system was abolished; the world price of cotton plunged, making the large southern cotton plantations much less profitable. Northern industry, which had expanded rapidly before and during the war, surged ahead. Industrialists came to dominate many aspects of the nation's life, including social and political affairs.
The Gilded Age: 1865–1900
The rapid economic development following the Civil War laid the groundwork for the modern U.S. industrial economy. By 1890, the USA leaped ahead of Britain for first place in manufacturing output.
An explosion of new discoveries and inventions took place, a process called the "Second Industrial Revolution
Second Industrial Revolution
The Second Industrial Revolution, also known as the Technological Revolution, was a phase of the larger Industrial Revolution corresponding to the latter half of the 19th century until World War I...
." Railroads greatly expanded the mileage and built stronger tracks and bridges that handled heavier cars and locomotives, carrying far more goods and people at lower rates. Refrigeration railroad cars came into use. The telephone, phonograph
Phonograph
The phonograph record player, or gramophone is a device introduced in 1877 that has had continued common use for reproducing sound recordings, although when first developed, the phonograph was used to both record and reproduce sounds...
, typewriter
Typewriter
A typewriter is a mechanical or electromechanical device with keys that, when pressed, cause characters to be printed on a medium, usually paper. Typically one character is printed per keypress, and the machine prints the characters by making ink impressions of type elements similar to the pieces...
and electric light were invented. By the dawn of the 20th century, cars had begun to replace horse-drawn carriages.
Parallel to these achievements was the development of the nation's industrial infrastructure. Coal was found in abundance in the Appalachian Mountains
Appalachian Mountains
The Appalachian Mountains #Whether the stressed vowel is or ,#Whether the "ch" is pronounced as a fricative or an affricate , and#Whether the final vowel is the monophthong or the diphthong .), often called the Appalachians, are a system of mountains in eastern North America. The Appalachians...
from Pennsylvania south to Kentucky
Kentucky
The Commonwealth of Kentucky is a state located in the East Central United States of America. As classified by the United States Census Bureau, Kentucky is a Southern state, more specifically in the East South Central region. Kentucky is one of four U.S. states constituted as a commonwealth...
. Oil was discovered in western Pennsylvania; it was mainly used for lubricants and for kerosene for lamps. Large iron ore mines opened in the Lake Superior
Lake Superior
Lake Superior is the largest of the five traditionally-demarcated Great Lakes of North America. It is bounded to the north by the Canadian province of Ontario and the U.S. state of Minnesota, and to the south by the U.S. states of Wisconsin and Michigan. It is the largest freshwater lake in the...
region of the upper Midwest. Steel mill
Steel mill
A steel mill or steelworks is an industrial plant for the manufacture of steel.Steel is an alloy of iron and carbon. It is produced in a two-stage process. First, iron ore is reduced or smelted with coke and limestone in a blast furnace, producing molten iron which is either cast into pig iron or...
s thrived in places where these coal and iron ore could be brought together to produce steel. Large copper and silver mines opened, followed by lead mines and cement factories.
In 1913 Henry Ford
Henry Ford
Henry Ford was an American industrialist, the founder of the Ford Motor Company, and sponsor of the development of the assembly line technique of mass production. His introduction of the Model T automobile revolutionized transportation and American industry...
introduced the assembly line
Assembly line
An assembly line is a manufacturing process in which parts are added to a product in a sequential manner using optimally planned logistics to create a finished product much faster than with handcrafting-type methods...
, a step in the process that became known as mass-production. Frederick W. Taylor pioneered the field of scientific management in the late 19th century, carefully plotting the functions of various workers and then devising new, more efficient ways for them to do their jobs. After 1910 mass production was sped by the electrification of factories, which replaced water power.
Gilded Age
In United States history, the Gilded Age refers to the era of rapid economic and population growth in the United States during the post–Civil War and post-Reconstruction eras of the late 19th century. The term "Gilded Age" was coined by Mark Twain and Charles Dudley Warner in their book The Gilded...
" of the second half of the 19th century was the epoch of tycoons. Many Americans came to idealize these businessmen who amassed vast financial empires. Often their success lay in seeing the long-range potential for a new service or product, as John D. Rockefeller
John D. Rockefeller
John Davison Rockefeller was an American oil industrialist, investor, and philanthropist. He was the founder of the Standard Oil Company, which dominated the oil industry and was the first great U.S. business trust. Rockefeller revolutionized the petroleum industry and defined the structure of...
did with oil. They were fierce competitors, single-minded in their pursuit of financial success and power. Other giants in addition to Rockefeller and Ford included Jay Gould
Jay Gould
Jason "Jay" Gould was a leading American railroad developer and speculator. He has long been vilified as an archetypal robber baron, whose successes made him the ninth richest American in history. Condé Nast Portfolio ranked Gould as the 8th worst American CEO of all time...
, who made his money in railroads; J. Pierpont Morgan, banking; and Andrew Carnegie
Andrew Carnegie
Andrew Carnegie was a Scottish-American industrialist, businessman, and entrepreneur who led the enormous expansion of the American steel industry in the late 19th century...
, steel. Some tycoons were honest according to business standards of their day; others, however, used force, bribery, and guile to achieve their wealth and power. For better or worse, business interests acquired significant influence over government. Morgan operated on a grand scale in both his private and business life. He and his companions gambled, sailed yachts, gave lavish parties, and built palatial homes; Morgan was also a lay leader of the Episcopal Church
Episcopal Church (United States)
The Episcopal Church is a mainline Anglican Christian church found mainly in the United States , but also in Honduras, Taiwan, Colombia, Ecuador, Haiti, the Dominican Republic, Venezuela, the British Virgin Islands and parts of Europe...
and one of the world's leading art collectors. In contrast, men such as Rockefeller and Ford exhibited puritanical qualities. They retained small-town values and lifestyles. As church-goers, they felt a sense of responsibility to others. They believed that personal virtues could bring success; theirs was the gospel of work and thrift. Later their heirs would establish the largest philanthropic foundations in America. While upper-class European intellectuals generally looked on commerce with disdain, most Americans—living in a society with a more fluid class structure—enthusiastically embraced the idea of moneymaking. They enjoyed the risk and excitement of business enterprise, as well as the higher living standards and potential rewards of power and acclaim that business success brought.
The Gilded Age saw the greatest period of economic growth in American history. After the short-lived panic of 1873
Panic of 1873
The Panic of 1873 triggered a severe international economic depression in both Europe and the United States that lasted until 1879, and even longer in some countries. The depression was known as the Great Depression until the 1930s, but is now known as the Long Depression...
, the economy recovered with the advent of hard money policies and industrialization. From 1869 to 1879, the US economy grew at a rate of 6.8% for real GDP and 4.5% for real GDP per capita, despite the panic of 1873
Panic of 1873
The Panic of 1873 triggered a severe international economic depression in both Europe and the United States that lasted until 1879, and even longer in some countries. The depression was known as the Great Depression until the 1930s, but is now known as the Long Depression...
. The economy repeated this period of growth in the 1880s, in which the wealth of the nation grew at an annual rate of 3.8%, while the GDP was also doubled. Economist Milton Friedman states that for the 1880s:
The highest decadal rate [of growth of real reproducible, tangible wealth per head from 1805 to 1950] for periods of about ten years was apparently reached in the eighties with
approximately 3.8 percent."
However, Raymond W. Goldsmith
Raymond W. Goldsmith
Raymond W. Goldsmith was an American economist specialising in historical data on national income, saving, financial intermediation, and financial assets and liabilities....
, who originated the figures Friedman gives in this statement, had reservations about the data, stating that "a few of these are too much influenced by the cyclical position of the benchmark years or by possible errors in the estimates for the initial or terminal year to constitute measures of long-term trend." Goldsmith specifically compared his figures for the 1880s and 1890s, stating "that while 1880 and 1890 were years of prosperity, 1900 marked a cyclical trough, and that measures of economic activity eliminating trend are considerably higher for the 'eighties than for the 'nineties."
Austrian Economist and scholar Murray Rothbard stated that for the 1880s:
Gross domestic product almost doubled from the decade before, a far larger percentage jump decade-on-decade than any time since.
Capital investment also increased tremondously during the 1880s, increasing nearly 500%, while capital formation doubled during the decade. Rothbard states that:
This massive 500-percent decade-on-decade increase has never since been even closely rivaled. It stands in particular contrast to the virtual stagnation witnessed by the 1970s.
Long-term interest rates also declined to 3 to 3.5% for the first time, reaching the same level as Britain and 17th century Holland.
The American labor movement
Labor unions in the United States
Labor unions in the United States are legally recognized as representatives of workers in many industries. The most prominent unions are among public sector employees such as teachers and police...
began with the first significant labor union, the Knights of Labor
Knights of Labor
The Knights of Labor was the largest and one of the most important American labor organizations of the 1880s. Its most important leader was Terence Powderly...
in 1869. The Knights collapsed in the 1880s and were displaced by strong international unions that banded together as the American Federation of Labor
American Federation of Labor
The American Federation of Labor was one of the first federations of labor unions in the United States. It was founded in 1886 by an alliance of craft unions disaffected from the Knights of Labor, a national labor association. Samuel Gompers was elected president of the Federation at its...
under Samuel Gompers
Samuel Gompers
Samuel Gompers was an English-born American cigar maker who became a labor union leader and a key figure in American labor history. Gompers founded the American Federation of Labor , and served as that organization's president from 1886 to 1894 and from 1895 until his death in 1924...
. Rejecting socialism, the AFL unions negotiated with owners for higher wages and better working conditions. Union growth was slow until 1900, then grew to a peak during World War I.
To modernize traditional agriculture reformers founded the Grange movement
Grange movement
The National Grange of the Order of Patrons of Husbandry, also simply styled the Grange, is a fraternal organization for American farmers that encourages farm families to band together for their common economic and political well-being...
, in 1867. Federal land grants helped each state create an agricultural college and a network of extension agents who demonstrated modern techniques to farmers. Wheat and cotton farmers in the 1890s supported the Populist
Populist Party (United States)
The People's Party, also known as the "Populists", was a short-lived political party in the United States established in 1891. It was most important in 1892-96, then rapidly faded away...
movement, but failed in their demands for free silver and inflation. Instead the 1896 election committed the nation to the gold standard and a program of sustained industrialization.
During the period, a series of recessions happened.
Panic of 1873
Panic of 1873
The Panic of 1873 triggered a severe international economic depression in both Europe and the United States that lasted until 1879, and even longer in some countries. The depression was known as the Great Depression until the 1930s, but is now known as the Long Depression...
had New York Stock Exchange closed for ten days, of the country's 364 railroads, 89 went bankrupt, a total of 18,000 businesses failed between 1873 and 1875, unemployment reached 14% by 1876, during a time which became known as the Long Depression
Long Depression
The Long Depression was a worldwide economic crisis, felt most heavily in Europe and the United States, which had been experiencing strong economic growth fueled by the Second Industrial Revolution in the decade following the American Civil War. At the time, the episode was labeled the Great...
.
The end of the Gilded Age coincided with the Panic of 1893
Panic of 1893
The Panic of 1893 was a serious economic depression in the United States that began in 1893. Similar to the Panic of 1873, this panic was marked by the collapse of railroad overbuilding and shaky railroad financing which set off a series of bank failures...
, a deep depression that lasted until 1897 and marked a major political realignment in the election of 1896.
Progressive Era: 1890–1920
In the early years of American history, most political leaders were reluctant to involve the federal government too heavily in the private sector, except in the area of transportation. In general, they accepted the concept of laissez-faire
Laissez-faire
In economics, laissez-faire describes an environment in which transactions between private parties are free from state intervention, including restrictive regulations, taxes, tariffs and enforced monopolies....
, a doctrine opposing government interference in the economy except to maintain law and order. This attitude started to change during the latter part of the 19th century, when small business, farm, and labor movements began asking the government to intercede on their behalf.
By the turn of the century, a middle class had developed that was leery of both the business elite and the somewhat radical political movements of farmers and laborers in the Midwest and West. Known as Progressives, these people favored government regulation of business practices to, in their minds, ensure competition and free enterprise. Congress enacted a law regulating railroads in 1887 (the Interstate Commerce Act), and one preventing large firms from controlling a single industry in 1890 (the Sherman Antitrust Act
Sherman Antitrust Act
The Sherman Antitrust Act requires the United States federal government to investigate and pursue trusts, companies, and organizations suspected of violating the Act. It was the first Federal statute to limit cartels and monopolies, and today still forms the basis for most antitrust litigation by...
). These laws were not rigorously enforced, however, until the years between 1900 and 1920, when Republican President Theodore Roosevelt
Theodore Roosevelt
Theodore "Teddy" Roosevelt was the 26th President of the United States . He is noted for his exuberant personality, range of interests and achievements, and his leadership of the Progressive Movement, as well as his "cowboy" persona and robust masculinity...
(1901–1909), Democratic President Woodrow Wilson
Woodrow Wilson
Thomas Woodrow Wilson was the 28th President of the United States, from 1913 to 1921. A leader of the Progressive Movement, he served as President of Princeton University from 1902 to 1910, and then as the Governor of New Jersey from 1911 to 1913...
(1913–1921), and others sympathetic to the views of the Progressives came to power. Many of today's U.S. regulatory agencies were created during these years, including the Interstate Commerce Commission
Interstate Commerce Commission
The Interstate Commerce Commission was a regulatory body in the United States created by the Interstate Commerce Act of 1887. The agency's original purpose was to regulate railroads to ensure fair rates, to eliminate rate discrimination, and to regulate other aspects of common carriers, including...
and the Federal Trade Commission
Federal Trade Commission
The Federal Trade Commission is an independent agency of the United States government, established in 1914 by the Federal Trade Commission Act...
. Ida M. Tarbell
Ida M. Tarbell
Ida Minerva Tarbell was an American teacher, author and journalist. She was known as one of the leading "muckrakers" of the progressive era, work known in modern times as "investigative journalism". She wrote many notable magazine series and biographies...
wrote a series of articles against the Standard Oil
Standard Oil
Standard Oil was a predominant American integrated oil producing, transporting, refining, and marketing company. Established in 1870 as a corporation in Ohio, it was the largest oil refiner in the world and operated as a major company trust and was one of the world's first and largest multinational...
monopoly. The series helped pave the way for the breakup of the monopoly.
Muckrakers were journalists who encouraged readers to demand more regulation of business. Upton Sinclair
Upton Sinclair
Upton Beall Sinclair Jr. , was an American author who wrote close to one hundred books in many genres. He achieved popularity in the first half of the twentieth century, acquiring particular fame for his classic muckraking novel, The Jungle . It exposed conditions in the U.S...
's The Jungle
The Jungle
The Jungle is a 1906 novel written by journalist Upton Sinclair. Sinclair wrote the novel with the intention of portraying the life of the immigrant in the United States, but readers were more concerned with the large portion of the book pertaining to the corruption of the American meatpacking...
(1906) showed America the horrors of the Chicago Union Stock Yards
Union Stock Yards
The Union Stock Yard & Transit Co., or The Yards, was the meat packing district in Chicago for over a century starting in 1865. The district was operated by a group of railroad companies that acquired swampland, and turned it to a centralized processing area...
, a giant complex of meat processing that developed in the 1870s. The federal government responded to Sinclair's book with the new regulatory Food and Drug Administration
Food and Drug Administration
The Food and Drug Administration is an agency of the United States Department of Health and Human Services, one of the United States federal executive departments...
.
When Democrat Woodrow Wilson
Woodrow Wilson
Thomas Woodrow Wilson was the 28th President of the United States, from 1913 to 1921. A leader of the Progressive Movement, he served as President of Princeton University from 1902 to 1910, and then as the Governor of New Jersey from 1911 to 1913...
was elected President with a Democratic Congress in 1912 he implemented a series of progressive policies. In 1913, the Sixteenth Amendment
Sixteenth Amendment to the United States Constitution
The Sixteenth Amendment to the United States Constitution allows the Congress to levy an income tax without apportioning it among the states or basing it on Census results...
was ratified, and the income tax
Income tax
An income tax is a tax levied on the income of individuals or businesses . Various income tax systems exist, with varying degrees of tax incidence. Income taxation can be progressive, proportional, or regressive. When the tax is levied on the income of companies, it is often called a corporate...
was instituted in the United States. Wilson resolved the longstanding debates over tariffs and antitrust, and created the Federal Reserve, a complex business-government partnership that to this day dominates the financial world.
In 1913, Henry Ford
Henry Ford
Henry Ford was an American industrialist, the founder of the Ford Motor Company, and sponsor of the development of the assembly line technique of mass production. His introduction of the Model T automobile revolutionized transportation and American industry...
, adopted the moving assembly line, with each worker doing one simple task in the production of automobiles. Taking his cue from developments during the progressive era, Ford offered a very generous wage—$5 a day—to his workers, arguing that a mass production
Mass production
Mass production is the production of large amounts of standardized products, including and especially on assembly lines...
enterprise could not survive if average workers could not buy the goods. However, the wage increase did not extend to women, and Ford expanded the company's Sociological Department to monitor his workers and ensure that they did not spend their new found bounty on "vice and cheap thrills."
Electrification
Electrification
Electrification originally referred to the build out of the electrical generating and distribution systems which occurred in the United States, England and other countries from the mid 1880's until around 1940 and is in progress in developing countries. This also included the change over from line...
in the U.S. started in industry ca. 1900 and by 1930 about 80% of power used in industry was electric. Electric utilities with central generating stations using steam turbine
Steam turbine
A steam turbine is a mechanical device that extracts thermal energy from pressurized steam, and converts it into rotary motion. Its modern manifestation was invented by Sir Charles Parsons in 1884....
s greatly lowered the cost of power with businesses and houses in cities becoming electrified.
Electric street railways developed into a major mode of transportation, and electric inter-urban service connected many cities in the northeast and mid-west.
Tractors began being mass-produced.
Roaring twenties: 1920–1929
Warren G. Harding
Warren Gamaliel Harding was the 29th President of the United States . A Republican from Ohio, Harding was an influential self-made newspaper publisher. He served in the Ohio Senate , as the 28th Lieutenant Governor of Ohio and as a U.S. Senator...
, who called for normalcy and an end to high wartime taxes, Secretary of the Treasury Andrew Mellon raised the tariff, cut other taxes, and used the large surplus to reduce the federal debt by about a third from 1920 to 1930. Secretary of Commerce Herbert Hoover
Herbert Hoover
Herbert Clark Hoover was the 31st President of the United States . Hoover was originally a professional mining engineer and author. As the United States Secretary of Commerce in the 1920s under Presidents Warren Harding and Calvin Coolidge, he promoted partnerships between government and business...
worked to introduce efficiency, by regulating
Regulation
Regulation is administrative legislation that constitutes or constrains rights and allocates responsibilities. It can be distinguished from primary legislation on the one hand and judge-made law on the other...
business practices. This period of prosperity, along with the culture of the time, was known as the Roaring Twenties
Roaring Twenties
The Roaring Twenties is a phrase used to describe the 1920s, principally in North America, but also in London, Berlin and Paris for a period of sustained economic prosperity. The phrase was meant to emphasize the period's social, artistic, and cultural dynamism...
. The rapid growth of the automobile industry stimulated industries such as oil, glass, and road-building. Tourism soared and consumers with cars had a much wider radius for their shopping. Small cities prospered, and large cities had their best decade ever, with a boom in construction of offices, factories and homes. The new electric power industry transformed both business and everyday life. Telephones and electricity spread to the countryside, but farmers never recovered from the wartime bubble in land prices. Millions migrated to nearby cities. However, in October 1929, the Stock market crash
Stock market crash
A stock market crash is a sudden dramatic decline of stock prices across a significant cross-section of a stock market, resulting in a significant loss of paper wealth. Crashes are driven by panic as much as by underlying economic factors...
ed and banks began to fail in the Wall Street Crash of 1929
Wall Street Crash of 1929
The Wall Street Crash of 1929 , also known as the Great Crash, and the Stock Market Crash of 1929, was the most devastating stock market crash in the history of the United States, taking into consideration the full extent and duration of its fallout...
.
Great Depression: 1929–1941
Great Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...
. The Federal Reserve Board did not cause the depression but it made no effort to intervene by helping banks. The money supply fell by one-third, and it was hard to get a loan. In his last year as president, Herbert Hoover
Herbert Hoover
Herbert Clark Hoover was the 31st President of the United States . Hoover was originally a professional mining engineer and author. As the United States Secretary of Commerce in the 1920s under Presidents Warren Harding and Calvin Coolidge, he promoted partnerships between government and business...
passed a massive tax increase to boost sagging federal revenues, and signed the protectionist Smoot-Hawley Tariff, which incited retaliation by Canada, Britain, Germany and other trading partners. Economists generally agree that these measures deepened an already serious crisis. By 1932, the unemployment rate was 25%. Conditions were worse in heavy industry, lumbering, export agriculture (cotton, wheat, tobacco), and mining. Conditions were not quite as bad in white collar sectors and in light manufacturing.
Franklin Delano Roosevelt was elected President in 1932 without a specific program. He relied on a highly eclectic group of advisors who patched together many programs, known as the New Deal
New Deal
The New Deal was a series of economic programs implemented in the United States between 1933 and 1936. They were passed by the U.S. Congress during the first term of President Franklin D. Roosevelt. The programs were Roosevelt's responses to the Great Depression, and focused on what historians call...
.
Government spending increased from 8.0% of GNP under Hoover in 1932 to 10.2% of GNP in 1936. While Roosevelt balanced the "regular" budget the emergency budget was funded by debt, which increased from 33.6% of GNP in 1932 to 40.9% in 1936. Deficit spending
Deficit spending
Deficit spending is the amount by which a government, private company, or individual's spending exceeds income over a particular period of time, also called simply "deficit," or "budget deficit," the opposite of budget surplus....
had been recommended by some economists, most notably John Maynard Keynes
John Maynard Keynes
John Maynard Keynes, Baron Keynes of Tilton, CB FBA , was a British economist whose ideas have profoundly affected the theory and practice of modern macroeconomics, as well as the economic policies of governments...
in Britain. Roosevelt met Keynes but did not pay attention to his recommendations. After a meeting with Keynes, who kept drawing diagrams, Roosevelt remarked that "He must be a mathematician rather than a political economist."
The extent to which the spending for relief and public works provided a sufficient stimulus to revive the U.S. economy, or whether it harmed the economy, is also debated. If one defines economic health entirely by the gross domestic product, the U.S. had gotten back on track by 1934, and made a full recovery by 1936, but as Roosevelt said, one third of the nation was ill fed, ill-housed and ill-clothed. See Chart 3. GNP was 34% higher in 1936 than 1932, and 58% higher in 1940 on the eve of war. The economy grew 58% from 1932 to 1940 in 8 years of peacetime, and then grew another 56% from 1940 to 1945 in 5 years of wartime. The unemployment rate fell from 25.2% in 1932 to 13.9% in 1940 when the draft started. During the war the economy operated under so many different conditions that comparison is impossible with peacetime, such as massive spending, price controls, bond campaigns, controls over raw materials, prohibitions on new housing and new automobiles, rationing, guaranteed cost-plus profits, subsidized wages, and the draft of 12 million soldiers.
Wake Forest University
Wake Forest University is a private, coeducational university in the U.S. state of North Carolina, founded in 1834. The university received its name from its original location in Wake Forest, north of Raleigh, North Carolina, the state capital. The Reynolda Campus, the university's main campus, is...
stated that measuring the effect of the New Deal remains a thorny issue for economists because it's so difficult to measure the effects it had on the country. One small survey by Whaples showed that 49% of those economists surveyed felt that the New Deal lengthened and deepened the depression, while 51% disagreed. The same survey also showed that only 5% of professional historians and 27% of professional economists felt the same way. However, economist Eric Rauchway of the University of California
University of California
The University of California is a public university system in the U.S. state of California. Under the California Master Plan for Higher Education, the University of California is a part of the state's three-tier public higher education system, which also includes the California State University...
stated "very few people disapprove of most of the New Deal reforms," which include Social Security, the Securities and Exchange Commission, the Federal Deposit Insurance Corp., and Fannie Mae. Regardless, unemployment peaked in 1932 at 25% and was reduced to 13.9% by 1940.
As Broadus Mitchell summarized, "Most indexes worsened until the summer of 1932, which may be called the low point of the depression economically and psychologically." Economic indicators show the American economy declined until February 1933. After Roosevelt took office, there began a steady, sharp upward recovery that persisted until the brief Recession of 1937–1938 (see graph) after which they continued their upward climb. Thus the Federal Reserve Index of Industrial Production bottomed at 52.8 on July 1, 1932 and was practically unchanged at 54.3 on March 1, 1933; however by July 1, 1933, it had climbed to 85.5 (with 1935–39 = 100, and for comparison 2005 = 1,342).
| Table 2: Depression Data | 1929 | 1931 | 1933 | 1937 | 1938 | 1940 |
|---|---|---|---|---|---|---|
| Real Gross National Product (GNP) 1 | 101.4 | 84.3 | 68.3 | 103.9 | 103.7 | 113.0 |
| Consumer Price Index 2 | 122.5 | 108.7 | 92.4 | 102.7 | 99.4 | 100.2 |
| Index of Industrial Production 2 | 109 | 75 | 69 | 112 | 89 | 126 |
| Money Supply M2 ($ billions) | 46.6 | 42.7 | 32.2 | 45.7 | 49.3 | 55.2 |
| Exports ($ billions) | 5.24 | 2.42 | 1.67 | 3.35 | 3.18 | 4.02 |
| Unemployment (% of civilian work force) | 3.1 | 16.1 | 25.2 | 13.8 | 16.5 | 13.9 |
1 in 1929 dollars
2 1935–39 = 100
Wartime controls: 1941–1945
War Production Board
The War Production Board was established as a government agency on January 16, 1942 by executive order of Franklin D. Roosevelt.The purpose of the board was to regulate the production and allocation of materials and fuel during World War II in the United States...
coordinated the nation's productive capabilities so that military priorities would be met. Converted consumer-products plants filled many military orders. Automakers built tanks and aircraft, for example, making the United States the "arsenal of democracy." In an effort to prevent rising national income and scarce consumer products to cause inflation, the newly created Office of Price Administration
Office of Price Administration
The Office of Price Administration was established within the Office for Emergency Management of the United States government by Executive Order 8875 on August 28, 1941. The functions of the OPA was originally to control money and rents after the outbreak of World War II.President Franklin D...
controlled rents on some dwellings, rationed consumer items ranging from sugar to gasoline, and otherwise tried to restrain price increases.
Six million women took jobs in manufacturing and production; most were newly created temporary jobs in munitions. Some were replacing men away in the military. These working women were symbolized by the fictional character of Rosie the Riveter
Rosie the Riveter
Rosie the Riveter is a cultural icon of the United States, representing the American women who worked in factories during World War II, many of whom produced munitions and war supplies. These women sometimes took entirely new jobs replacing the male workers who were in the military...
. After the war many women returned to household work as men returned from military service. The nation turned to the suburbs, as a pent-up demand for new housing was finally unleashed.
Postwar prosperity: 1945–1973
The period from the end of World War II to the early 1970s was a golden era of American capitalism. $200 billion in war bonds matured, and the G.I. Bill financed a well-educated work force. The middle class swelled, as did GDP and productivity. The U.S. underwent a kind of golden age of economic growth. This growth was distributed fairly evenly across the economic classes, which some attribute to the strength of labor unions in this period—labor union membership peaked historically in the U.S. during the 1950s, in the midst of this massive economic growth. Much of the growth came from the movement of low income farm workers into better paying jobs in the towns and cities—a process largely completed by 1960. Congress created the Council of Economic Advisors, to promote high employment, high profits and low inflation. The Eisenhower administration (1953–1961) supported an activist contracyclical approach that helped to establish Keynesianism as a bipartisan economic policy for the nation. Especially important in formulating the CEA response to the recession—accelerating public works programs, easing credit, and reducing taxes—were Arthur F. BurnsArthur F. Burns
Arthur Frank Burns was an American economist. He served as Chairman of the Federal Reserve from 1970 to 1978.- Career :...
and Neil H. Jacoby
Neil H. Jacoby
Neil Herman Jacoby was a university professor and public servant and was widely recognized as an expert on matters of taxation, finance, economic policy, and business-government relationships.-Early life:...
. ""I am now a Keynesian in economics," proclaimed Republican President Richard Nixon in 1969.
The "Baby Boom" saw a dramatic increase in fertility in the period 1942–1957; it was caused by delayed marriages and childbearing during depression years, a surge in prosperity, a demand for suburban single-family homes (as opposed to inner city apartments) and new optimism about the future. The boom crested about 1957, then slowly declined.
Liberal programs
Federal taxes on incomes, profits and payrolls had risen to high levels during World War II and had been cut back only slowly; the highest rates for individuals reached the 90% level. Congress cut tax rates in 1964. President Lyndon B. JohnsonLyndon B. Johnson
Lyndon Baines Johnson , often referred to as LBJ, was the 36th President of the United States after his service as the 37th Vice President of the United States...
(1963–69) dreamed of creating a "Great Society
Great Society
The Great Society was a set of domestic programs in the United States promoted by President Lyndon B. Johnson and fellow Democrats in Congress in the 1960s. Two main goals of the Great Society social reforms were the elimination of poverty and racial injustice...
", and began many new social programs to that end, such as Medicaid
Medicaid
Medicaid is the United States health program for certain people and families with low incomes and resources. It is a means-tested program that is jointly funded by the state and federal governments, and is managed by the states. People served by Medicaid are U.S. citizens or legal permanent...
and Medicare
Medicare (United States)
Medicare is a social insurance program administered by the United States government, providing health insurance coverage to people who are aged 65 and over; to those who are under 65 and are permanently physically disabled or who have a congenital physical disability; or to those who meet other...
. The government financed some of private industry's research and development throughout these decades, most notably ARPANET
ARPANET
The Advanced Research Projects Agency Network , was the world's first operational packet switching network and the core network of a set that came to compose the global Internet...
(which would become the Internet).
Inflation woes: 1970s
The postwar boom ended with a number of events in the early 1970s:- the collapse of the Bretton Woods systemBretton Woods systemThe Bretton Woods system of monetary management established the rules for commercial and financial relations among the world's major industrial states in the mid 20th century...
in 1971 - the growing influx of imported manufacturing goods, such as automobiles and electronics
- the 1973 oil crisis,
- the 1973–1974 stock market crash,
- and the ensuing displacement of Keynesian economicsKeynesian economicsKeynesian economics is a school of macroeconomic thought based on the ideas of 20th-century English economist John Maynard Keynes.Keynesian economics argues that private sector decisions sometimes lead to inefficient macroeconomic outcomes and, therefore, advocates active policy responses by the...
by monetarist economicsMonetarismMonetarism is a tendency in economic thought that emphasizes the role of governments in controlling the amount of money in circulation. It is the view within monetary economics that variation in the money supply has major influences on national output in the short run and the price level over...
, especially by the free-market Chicago School of Economics, led by conservative theorist Milton FriedmanMilton FriedmanMilton Friedman was an American economist, statistician, academic, and author who taught at the University of Chicago for more than three decades...
. At the same time, the consensus among experts moved against New-Deal-style regulation, in favor of deregulation.
In the late 1960s it was apparent to some that this juggernaut of economic growth was slowing down, and it began to become visibly apparent in the early 1970s. The United States grew increasingly dependent on oil importation from OPEC
OPEC
OPEC is an intergovernmental organization of twelve developing countries made up of Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela. OPEC has maintained its headquarters in Vienna since 1965, and hosts regular meetings...
after peaking production
Oil reserves in the United States
Proven oil reserves in the United States are , excluding the Strategic Petroleum Reserve. The U.S. Department of the Interior estimates the total volume of undiscovered, technically recoverable prospective resources in all areas of the United States, including the Federal Outer Continental Shelf,...
in 1970, resulting in oil supply shocks in 1973
1973 oil crisis
The 1973 oil crisis started in October 1973, when the members of Organization of Arab Petroleum Exporting Countries or the OAPEC proclaimed an oil embargo. This was "in response to the U.S. decision to re-supply the Israeli military" during the Yom Kippur war. It lasted until March 1974. With the...
and 1979
1979 energy crisis
The 1979 oil crisis in the United States occurred in the wake of the Iranian Revolution. Amid massive protests, the Shah of Iran, Mohammad Reza Pahlavi, fled his country in early 1979 and the Ayatollah Khomeini soon became the new leader of Iran. Protests severely disrupted the Iranian oil...
. Stagflation
Stagflation
In economics, stagflation is a situation in which the inflation rate is high and the economic growth rate slows down and unemployment remains steadily high...
gripped the nation, and the government experimented with wage and price controls
Incomes policy
Incomes policies in economics are economy-wide wage and price controls, most commonly instituted as a response to inflation, and usually below market level.Incomes policies have often been resorted to during wartime...
under President Nixon
Richard Nixon
Richard Milhous Nixon was the 37th President of the United States, serving from 1969 to 1974. The only president to resign the office, Nixon had previously served as a US representative and senator from California and as the 36th Vice President of the United States from 1953 to 1961 under...
.
The Bretton Woods Agreement collapsed in 1971–1972, and President Nixon closed the gold window at the Federal Reserve, taking the United States entirely off the gold standard
Gold standard
The gold standard is a monetary system in which the standard economic unit of account is a fixed mass of gold. There are distinct kinds of gold standard...
.
President Gerald Ford
Gerald Ford
Gerald Rudolph "Jerry" Ford, Jr. was the 38th President of the United States, serving from 1974 to 1977, and the 40th Vice President of the United States serving from 1973 to 1974...
introduced the slogan, "Whip Inflation Now
Whip inflation now
Whip Inflation Now was an attempt to spur a grassroots movement to combat inflation, by encouraging personal savings and disciplined spending habits in combination with public measures, urged by U.S. President Gerald Ford...
" (WIN). In 1974, productivity shrunk by 1.5%, though this soon recovered. In 1976, Jimmy Carter
Jimmy Carter
James Earl "Jimmy" Carter, Jr. is an American politician who served as the 39th President of the United States and was the recipient of the 2002 Nobel Peace Prize, the only U.S. President to have received the Prize after leaving office...
won the Presidency. Carter would later take much of the blame for the even more turbulent economic times to come, though some say circumstances were outside his control. Inflation continued to climb skyward. Productivity growth was small, when not negative. Interest rates remained high, with the prime reaching 20% in January 1981; Art Buchwald
Art Buchwald
Arthur Buchwald was an American humorist best known for his long-running column in The Washington Post, which in turn was carried as a syndicated column in many other newspapers. His column focused on political satire and commentary...
quipped that 1980 would go down in history as the year when it was cheaper to borrow money from the Mafia
Mafia
The Mafia is a criminal syndicate that emerged in the mid-nineteenth century in Sicily, Italy. It is a loose association of criminal groups that share a common organizational structure and code of conduct, and whose common enterprise is protection racketeering...
than the local bank.
Unemployment dropped mostly steadily from 1975 to 1979, although it then began to rise sharply.
This period also saw the increased rise of the environmental and consumer movements, and the government established new regulations and regulatory agencies such as the Occupational Safety and Health Administration
Occupational Safety and Health Administration
The United States Occupational Safety and Health Administration is an agency of the United States Department of Labor. It was created by Congress of the United States under the Occupational Safety and Health Act, signed by President Richard M. Nixon, on December 29, 1970...
, the Consumer Product Safety Commission
Consumer Product Safety Commission
The United States Consumer Product Safety Commission is an independent agency of the United States government created in 1972 through the Consumer Product Safety Act to protect "against unreasonable risks of injuries associated with consumer products." The CPSC is an independent agency that does...
, the Nuclear Regulatory Commission
Nuclear Regulatory Commission
The Nuclear Regulatory Commission is an independent agency of the United States government that was established by the Energy Reorganization Act of 1974 from the United States Atomic Energy Commission, and was first opened January 19, 1975...
, and others.
Deregulation and Reaganomics: 1976–1992
Deregulation gained momentum in the mid-1970s, spurred by slow productivity growth and increasing operation and capital costs in several key sectors. It was not until 1978 that the first meaningful deregulation legislation, the Airline Deregulation ActAirline Deregulation Act
The Airline Deregulation Act is a United States federal law signed into law on October 24, 1978. The main purpose of the act was to remove government control over fares, routes and market entry from commercial aviation...
, was cleared by Congress. Transportation deregulation accelerated in 1980, with the deregulation of railroads and trucking. Deregulation of interstate buses followed in 1982. In addition to transportation deregulation, savings and loan associations and banks were partially deregulated with the Depository Institutions Deregulation and Monetary Control Act
Depository Institutions Deregulation and Monetary Control Act
The Depository Institutions Deregulation and Monetary Control Act, a United States federal financial statute law passed in 1980, gave the Federal Reserve greater control over non-member banks.* It forced all banks to abide by the Fed's rules....
in 1980 and the Garn–St. Germain Depository Institutions Act in 1982.
On a broader front, the economy initially recovered at a brisk pace from the 1973–75 recession
1973–75 recession
The 1973–75 recession in the United States or 1970s recession was a period of economic stagnation in much of the Western world during the 1970s, putting an end to the general post-World War II economic boom. It differed from many previous recessions as being a stagflation, where high unemployment...
. Incoming president Jimmy Carter
Jimmy Carter
James Earl "Jimmy" Carter, Jr. is an American politician who served as the 39th President of the United States and was the recipient of the 2002 Nobel Peace Prize, the only U.S. President to have received the Prize after leaving office...
instituted a large fiscal stimulus package in 1977 in order to boost the economy. However, inflation began a steep rise beginning in late 1978, and rose by double digits following the 1979 energy crisis
1979 energy crisis
The 1979 oil crisis in the United States occurred in the wake of the Iranian Revolution. Amid massive protests, the Shah of Iran, Mohammad Reza Pahlavi, fled his country in early 1979 and the Ayatollah Khomeini soon became the new leader of Iran. Protests severely disrupted the Iranian oil...
. In order to combat inflation, Carter appointed Paul Volcker
Paul Volcker
Paul Adolph Volcker, Jr. is an American economist. He was the Chairman of the Federal Reserve under United States Presidents Jimmy Carter and Ronald Reagan from August 1979 to August 1987. He is widely credited with ending the high levels of inflation seen in the United States in the 1970s and...
to the Federal Reserve, who raised interest rates and caused a sharp recession in the first six months of 1980. In March 1980, Carter introduced his own policies for reducing inflation, and the Federal Reserve brought down interest rates to cooperate with the initiatives.
During the 1980 recession, manufacturing shed 1.1 million jobs, while service industries remained intact. Employment in automotive manufacturing in particular suffered, experiencing a 33% reduction by the end of the recession. Collectively these factors contributed to the election of Ronald Reagan
Ronald Reagan
Ronald Wilson Reagan was the 40th President of the United States , the 33rd Governor of California and, prior to that, a radio, film and television actor....
in 1980. The Federal Reserve once again began to raise interest rates in 1981, which plunged the economy back into recession. Unemployment rose to a peak of 10.8% in December 1982, a post-war high.
In 1981, Ronald Reagan
Ronald Reagan
Ronald Wilson Reagan was the 40th President of the United States , the 33rd Governor of California and, prior to that, a radio, film and television actor....
introduced Reaganomics
Reaganomics
Reaganomics refers to the economic policies promoted by the U.S. President Ronald Reagan during the 1980s, also known as supply-side economics and called trickle-down economics, particularly by critics...
. That is, fiscally-expansive economic policies, cutting marginal federal income tax rates by 25%. Inflation dropped dramatically from 13.5% annually in 1980 to just 3% annually in 1983 due to a short recession and the Federal Reserve Chairman Paul Volcker
Paul Volcker
Paul Adolph Volcker, Jr. is an American economist. He was the Chairman of the Federal Reserve under United States Presidents Jimmy Carter and Ronald Reagan from August 1979 to August 1987. He is widely credited with ending the high levels of inflation seen in the United States in the 1970s and...
's tighter control of the money supply and interest rates. Real GDP began to grow after contracting in 1980 and 1982. The unemployment rate continued to rise to a peak of 10.8% by late 1982, but dropped well under 6% unemployment at the end of Reagan's presidency in January 1989. The gap between those in the upper socioeconomic levels and those in the lower socioeconomic levels increased during Reagan's presidency, and the federal debt spawned by his policies tripled (from $930 billion in 1981 to $2.6 trillion in 1988), reaching record levels. Though debt almost always increased under every president in the latter half of the 20th century, it declined as a percentage of GDP under all Presidents after 1950 and prior to Reagan. In addition to the fiscal deficits, the U.S. started to have large trade deficits. Also it was during his second term that the Tax Reform Act of 1986
Tax Reform Act of 1986
The U.S. Congress passed the Tax Reform Act of 1986 to simplify the income tax code, broaden the tax base and eliminate many tax shelters and other preferences...
was passed. Vice President George H. W. Bush
George H. W. Bush
George Herbert Walker Bush is an American politician who served as the 41st President of the United States . He had previously served as the 43rd Vice President of the United States , a congressman, an ambassador, and Director of Central Intelligence.Bush was born in Milton, Massachusetts, to...
was elected to succeed Reagan in 1988. The early Bush Presidency's economic policies were sometimes seen as a continuation of Reagan's policies, but in the early 1990s, Bush went back on a promise and increased taxes in a compromise with Congressional Democrats. He ended his presidency on a moderate note, signing regulatory bills such as the Americans With Disabilities Act, and negotiating the North American Free Trade Agreement
North American Free Trade Agreement
The North American Free Trade Agreement or NAFTA is an agreement signed by the governments of Canada, Mexico, and the United States, creating a trilateral trade bloc in North America. The agreement came into force on January 1, 1994. It superseded the Canada – United States Free Trade Agreement...
. In 1992, Bush and third-party candidate Ross Perot
Ross Perot
Henry Ross Perot is a U.S. businessman best known for running for President of the United States in 1992 and 1996. Perot founded Electronic Data Systems in 1962, sold the company to General Motors in 1984, and founded Perot Systems in 1988...
lost to Democrat Bill Clinton
Bill Clinton
William Jefferson "Bill" Clinton is an American politician who served as the 42nd President of the United States from 1993 to 2001. Inaugurated at age 46, he was the third-youngest president. He took office at the end of the Cold War, and was the first president of the baby boomer generation...
.
The advent of deindustrialization in the late 1960s and early 1970s saw income inequality increase dramatically to levels never seen before, but at the same time never before in the United States could consumers buy so many goods even with the inflation of the 1970s. In 1968, the U.S. Gini coefficient
Gini coefficient
The Gini coefficient is a measure of statistical dispersion developed by the Italian statistician and sociologist Corrado Gini and published in his 1912 paper "Variability and Mutability" ....
was 0.386, about equivalent to Japan (.381), though still above that of the United Kingdom (.368) and Canada (.331). However, in the years since, increased free trade, globalization and high corporate taxes have caused U.S. companies to begin to shift their manufacturing and heavy industrial operations to second- and third-world countries with lower labor costs, income inequality in the U.S. has risen dramatically. In 2005, the American Gini coefficient had reached 0.469, similar to that of Malaysia and the Philippines, both at .461, and well-ahead of China (.440). Critics of economic policies favored by Republican and Democratic administrations since the 1960s, particularly those expanding "free trade" and "open markets" say that these policies, though benefiting trading as well as the cost of products in the U.S., could have taken their own on the prosperity of the American middle-class. But in this period, consumers were buying as never before with so many products and goods at such low costs and in high quantities.
The Rise of Globalization and a World Superpower: 1990s-late 2000s
S&P 500
The S&P 500 is a free-float capitalization-weighted index published since 1957 of the prices of 500 large-cap common stocks actively traded in the United States. The stocks included in the S&P 500 are those of large publicly held companies that trade on either of the two largest American stock...
grew more than threefold.
From 1994 to 2000 real output increased, inflation was manageable and unemployment dropped to below 5%, resulting in a soaring stock market known as the Dot-com boom. The second half of the 1990s was characterized by well-publicized Initial Public Offerings of High-tech and "dot-com
Dot-com company
A dot-com company, or simply a dot-com , is a company that does most of its business on the Internet, usually through a website that uses the popular top-level domain, ".com" .While the term can refer to present-day companies, it is also used specifically to refer to companies with...
" companies. By 2000, however, it was evident a bubble in stock valuations had occurred, such that beginning in March 2000, the market would give back some 50% to 75% of the growth of the 1990s. The economy worsened in 2001 with output increasing only 0.3% and unemployment and business failures rising substantially, and triggering a recession
Early 2000s recession
The early 2000s recession was a decline in economic activity which occurred mainly in developed countries. The recession affected the European Union mostly during 2000 and 2001 and the United States mostly in 2002 and 2003. The UK, Canada and Australia avoided the recession for the most part, while...
that is often blamed on the September 11 attacks.
An additional factor in the fall of the US markets and in investor confidence included numerous corporate scandals.
Through 2001 to 2007, the red-hot housing market across the United States fueled a false sense of security regarding the strength of the U.S. economy.
Disintegrating Economy: An Ongoing Crisis
United States housing bubble
The United States housing bubble is an economic bubble affecting many parts of the United States housing market in over half of American states. Housing prices peaked in early 2006, started to decline in 2006 and 2007, and may not yet have hit bottom as of 2011. On December 30, 2008 the...
in California and Florida, and the collapse of housing prices and the construction industries. Millions of mortgages (averaging about $200,000 each) had been bundled into securities called collateralized debt obligation
Collateralized debt obligation
Collateralized debt obligations are a type of structured asset-backed security with multiple "tranches" that are issued by special purpose entities and collateralized by debt obligations including bonds and loans. Each tranche offers a varying degree of risk and return so as to meet investor demand...
s that were resold worldwide. Many banks and hedge funds had borrowed hundreds of billions of dollars to buy these securities, which were now "toxic" because their value was unknown and no one wanted to buy them.
A series of the largest banks in the U.S. and Europe collapsed; some went bankrupt, such as Lehman Brothers
Lehman Brothers
Lehman Brothers Holdings Inc. was a global financial services firm. Before declaring bankruptcy in 2008, Lehman was the fourth largest investment bank in the USA , doing business in investment banking, equity and fixed-income sales and trading Lehman Brothers Holdings Inc. (former NYSE ticker...
with $690 billion in assets; others such as the leading insurance company AIG
American International Group
American International Group, Inc. or AIG is an American multinational insurance corporation. Its corporate headquarters is located in the American International Building in New York City. The British headquarters office is on Fenchurch Street in London, continental Europe operations are based in...
, the leading bank Citigroup
Citigroup
Citigroup Inc. or Citi is an American multinational financial services corporation headquartered in Manhattan, New York City, New York, United States. Citigroup was formed from one of the world's largest mergers in history by combining the banking giant Citicorp and financial conglomerate...
, and the two largest mortgage companies were bailed out by the government. Congress voted $700 billion in bailout money, and the Treasury and Federal Reserve committed trillions of dollars to shoring up the financial system, but the measures did not reverse the declines. Banks drastically tightened their lending policies, despite infusions of federal money. It became much harder to get car loans, for example. The government for the first time took major ownership positions in the largest banks. The stock market plunged 40%, wiping out tens of trillions of dollars in wealth; housing prices fell 20% nationwide wiping out trillions more. By late 2008 distress was spreading beyond the financial and housing sectors, especially as the "Big Three" of the automobile industry (General Motors
General Motors
General Motors Company , commonly known as GM, formerly incorporated as General Motors Corporation, is an American multinational automotive corporation headquartered in Detroit, Michigan and the world's second-largest automaker in 2010...
, Ford and Chrysler
Chrysler
Chrysler Group LLC is a multinational automaker headquartered in Auburn Hills, Michigan, USA. Chrysler was first organized as the Chrysler Corporation in 1925....
) were on the verge of bankruptcy, and the retail sector showed major weaknesses. Critics of the $700 billion Troubled Assets Relief Program
Troubled Assets Relief Program
The Troubled Asset Relief Program is a program of the United States government to purchase assets and equity from financial institutions to strengthen its financial sector that was signed into law by U.S. President George W. Bush on October 3, 2008...
(TARP) expressed anger that much of the TARP money that has been distributed to banks is seemingly unaccounted for, with banks being secretive on the issue.
President Barack Obama
Barack Obama
Barack Hussein Obama II is the 44th and current President of the United States. He is the first African American to hold the office. Obama previously served as a United States Senator from Illinois, from January 2005 until he resigned following his victory in the 2008 presidential election.Born in...
signed the American Recovery and Reinvestment Act of 2009
American Recovery and Reinvestment Act of 2009
The American Recovery and Reinvestment Act of 2009, abbreviated ARRA and commonly referred to as the Stimulus or The Recovery Act, is an economic stimulus package enacted by the 111th United States Congress in February 2009 and signed into law on February 17, 2009, by President Barack Obama.To...
in February 2009; the bill provides $787 billion in stimulus through a combination of spending and tax cuts. The plan is largely based on the Keynesian theory
Keynesian economics
Keynesian economics is a school of macroeconomic thought based on the ideas of 20th-century English economist John Maynard Keynes.Keynesian economics argues that private sector decisions sometimes lead to inefficient macroeconomic outcomes and, therefore, advocates active policy responses by the...
that government spending should offset the fall in private spending during an economic downturn; otherwise the fall in private spending may perpetuate itself and productive resources, such as the labor hours of the unemployed, will be wasted. Critics claim that government spending cannot offset a fall in private spending because government must borrow money from the private sector in order to add money to it. However, most economists do not think such "crowding out
Crowding out (economics)
In economics, crowding out occurs when Expansionary Fiscal Policy causes interest rates to rise, thereby reducing private spending. That means increase in government spending crowds out investment spending....
" is an issue when interest rates are near zero
Zero interest rate policy
The zero interest rate policy is a macroeconomic concept describing conditions with a very low interest rate, such as contemporary Japan and, since December 16, 2008, the United States. It can be associated with slow economic growth....
and the economy is stagnant
Economic stagnation
Economic stagnation or economic immobilism, often called simply stagnation or immobilism, is a prolonged period of slow economic growth , usually accompanied by high unemployment. Under some definitions, "slow" means significantly slower than potential growth as estimated by experts in macroeconomics...
. Opponents of the stimulus also point to problems of possible future inflation and government debt
Government debt
Government debt is money owed by a central government. In the US, "government debt" may also refer to the debt of a municipal or local government...
caused by such a large expenditure.
Historical statistics
United States Annual Economic Data |
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See also
- Great Depression in the United StatesGreat Depression in the United StatesThe Great Depression began with the Wall Street Crash of October, 1929 and rapidly spread worldwide. The market crash marked the beginning of a decade of high unemployment, poverty, low profits, deflation, plunging farm incomes, and lost opportunities for economic growth and personal advancement...
- Labor unions in the United StatesLabor unions in the United StatesLabor unions in the United States are legally recognized as representatives of workers in many industries. The most prominent unions are among public sector employees such as teachers and police...
- List of regions by past GDP (PPP)
- Productivity improving technologies (historical)Productivity improving technologies (historical)Productivity improving technologies date back to antiquity, with rather slow progress until the late Middle Ages. Technological progress was aided by literacy and the diffusion of knowledge that accelerated after the spinning wheel spread to Western Europe in the 13th century...
- Second industrial revolutionSecond Industrial RevolutionThe Second Industrial Revolution, also known as the Technological Revolution, was a phase of the larger Industrial Revolution corresponding to the latter half of the 19th century until World War I...
Data
- Bureau of the Census, Historical Statistics of the United States: Colonial Times to 1970 (1976) part 1 online; part 2 online
- Carter, Susan B. et al. eds. The Historical Statistics of the United States (6 vol: Cambridge UP, 2006); huge compilation of statistical data; online
- Council of Economic Advisors, Economic Report of the President (annual 1947– ), complete series online; important analysis of current trends and policies, plus statistcial tables
- Bureau of Economic Analysis: Official United States GDP data